Eli encountered significant challenges during the acquisition attempt. They stemmed from the large number of shareholders in Teva and the fact that it was a publically traded company. Corporate takeovers were rare in the early days of the Tel Aviv Stock Exchange (TASE) and, indeed, remain infrequent to this day. Due to the steadfast opposition of one of its primary shareholders, Eli concluded that gaining control of the company would require complete secrecy. However, he also found it virtually impossible to devise a deal to acquire Teva, or to merge Teva and Assia, that did not involve a drawn-out negotiation process and an official public announcement. Eli finally decided that the best option at his disposal was a hostile takeover.
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Teva’s two founders, Gunter Friedlander and his aunt Elsa Kuver, had maintained control of the company since establishing it. During the 1930s, they concluded that they lacked the capital necessary to establish a reputable pharmaceutical company on their own and went through the process of raising capital from external sources to fund their company’s operation and expansion. They were assisted by a relative named Alfred Feuchtwanger, a banker of German origin who, in conjunction with Jacob Japhet, had established the private German-Jewish bank, J.L. Feuchtwanger Ltd., in Tel Aviv. Feuchtwanger made an important contribution to the company’s development.
In the early 1950s, Feuchtwanger initiated Teva’s entry to the Tel Aviv Stock Exchange as a publically traded company in order to raise resources to invest in its development. This left each partner with the same number of voting shares, but with only one quarter of the company’s non-voting shares. A quarter of the non-voting shares now were in the hands of the public. In the early 1960s, the government-controlled Industrial Development Bank of Israel became an influential shareholder in Teva; it acquired the shares of Elsa Kuver, including her voting shares and approximately one-quarter of the company’s non-voting shares. Although Friedlander had become a minority shareholder in the company long ago and now held only 10 percent of its stock, he remained a dominant figure in the company by virtue of his personality, his control of one-third of Teva’s voting shares, and his influence with Industrial Development Bank, which owned his former partner’s voting shares.
Following the merger with Zori, Eli began using Assia funds to acquire non-voting shares of Teva on the Tel Aviv Stock Exchange. This was the initial anchor for his acquisition bid. Although the shares constituted a partnership in Teva’s capital, they did not enable him to gain control over the company, as the prospectus issued with Teva’s initial public offering in 1951 stipulated that voting shares would remain in the hands of the founders. Indeed, they remained in the hands of Friedlander, Feuchtwanger, and the Industrial Development Bank of Israel. However, stock exchange regulations recognized any entity holding stocks amounting to five percent of the value of a company as a minority shareholder with rights. With this in mind, Eli accelerated his acquisition of Teva shares on the stock exchange after the Six Day War and encouraged the CTIC to do the same.
Teva, as mentioned above, had issued shares for a quarter of its worth. Eli and his partners at CTIC acquired 20 percent of these shares, which amounted to five percent of the company’s worth. At the same time, Eli tried to negotiate with Friedlander to purchase his shares in the company or to merge with Assia-Zori. Predictably, Friedlander refused to do so.
Friedlander’s determined opposition stemmed from his view of the company as his home and his creation. For him, Teva was not simply a tradable pharmaceutical company that may or may not be profitable; it was an idea, a dream, and a vision. This is why he had cultivated a relationship with the scholars of the Hebrew University and initiated cooperation between Teva and the university in a variety of subjects. He even helped found the university’s School of Pharmacy and promoted public projects for the development of pharmaceutical science. If he allowed the company he had created with his own two hands to be taken over by Assia-Zori, he was sure that his dream would vanish. He strongly believed that the high-quality products produced by Teva were the outcome of in-depth scientific thinking that transcended routine business concerns.
Nothing could budge him from his intransigence, including the fact that under his management, the company had faltered and had almost gone bankrupt during the recession. Employees were not always paid on time, while members of the management received generous salaries relative to the company’s poor financial condition. The plant in Bayit Vegan had been neglected for years. The company’s inventory was much larger than necessary or customary at other pharmaceutical companies, a serious problem in an industry where products have expiration dates. Most importantly, Teva had not issued dividends to its shareholders for years. Friedlander believed these were minor issues that could be resolved with time and was unwavering in his refusal to let anyone take over the company, which he was certain would lead to its destruction.
Despite his recognition of these challenges, Eli attempted to negotiate with Friedlander, offering various deals in which Friedlander could save face and remain the titular CEO of a combined enterprise until his retirement. Friedlander refused all of Eli’s proposals.
Eli next attempted to approach Fuechtwanger, who as a banker, was more focused on his fiduciary obligations to maximize profits than on Friedlander’s commitment to maintaining control and management compensation. This was Friedlander’s Achilles heel. Along with Amos Melamed and Ami Brown, the CTIC’s young, dynamic professional representatives on Assia’s board of directors, Eli asked Moshe Shamir, the Elstein family representative on the board (who had ties to Fuechtwanger), to determine whether he would agree to sell his shares to Assia. Fuechtwanger, an intelligent banker who lived in Switzerland most of the time, possessed a sober understanding of Teva’s state of affairs. It had been years since he had received a dividend, and, from his perspective, his holdings in the company were illiquid and nonperforming. Fuechtwanger had shared his views with Friedlander on several occasions, but nothing had changed.
Once negotiations with Friedlander broke down, Eli and his two young associates approached Fuechtwanger with a serious offer to purchase 33 percent of the controlling shares at his disposal (but only 10 percent of his non-voting shares). They offered him 2.05 Israeli pounds per share even though their value at the bank on the day of the offer was only 1.4 Israeli pounds. It was the kind of offer that a fiduciary like Fuechtwanger could not refuse, despite his familial relationship with Friedlander and understanding of Friedlander’s strong views on the matter. Born in 1902, Freidlander was now neither young nor healthy and the stress of Teva’s business challenges had the potential to exacerbate his illnesses.
Shortly after accepting Eli’s offer with a handshake, Fuechtwanger went to Jerusalem to meet with Friedlander. Fuechtwanger told him plainly that he had received an offer to sell a significant portion of his shares in the company, including his controlling shares. The founder of Teva was dumbfounded that Fuechtwanger, of all people, had agreed to sell his shares to Assia.
Eli again tried to explain to Friedlander that all he wanted to do was to merge Teva and Assia, that he had no intention of removing him as CEO of his life’s work, and that he would agree to keep him on as CEO in the future as well, as long as he allowed him and his colleagues to make the changes necessary to rehabilitate the company.
“He refused,” Eli recounted. “He didn’t want to. I advised him: ‘Gunter – ultimately, life is stronger than we are.’ But he remained firm in his decision.”
Eli remained resolute in his conviction that a merger between Assia and Teva would benefit all of its shareholders, as well as Israel’s economy. After speaking with Friedlander, Eli approached the Industrial Development Bank of Israel (IDB), which was then headed by Moshe Sanbar (then Sanberg), who would later serve as the second governor of the Bank of Israel. Eli understood that if the heads of the bank refused to take part in the transaction, they would be able to cooperate with Friedlander and thwart Assia’s takeove
r of Teva. In recent years, Sanbar, whose bank held one third of Teva’s controlling shares (and 38 percent of its non-voting shares), had attempted to run the company more efficiently. He had even appointed a director on his behalf. Friedlander, however, was unwilling to cooperate. When Sanbar’s appointee showed up in his office, he threw him out in a fury. Eli found it easy to convince Sanbar and his colleagues at IDB. He knew that the logical explanations he had offered Fuechtwanger would make sense to them. After all, their shares in Teva were bearing no fruit when Eli came along and offered to take the shares off their hands for much more than the market price.
During their meeting, Sanbar agreed with Eli’s assessment, but explained that according to the regulations of the bank and its proprietor (the Israeli government), selling the shares required a public tender. This did not discourage Eli, even though a Histadrut company such as Koor was likely to take part in the tender. He knew that in a closed tender, no one would even consider offering a price similar to what he had proposed to Fuechtwanger. Plus it was unclear what Koor or another company could do with the Teva shares. Koor did not submit a bid in the tender and for a moment it appeared that the acquisition of Teva was on track.
Then things became complicated. In order to meet his fiduciary obligations to Assia’s shareholders, Eli could not submit a bid to IDB without personally inspecting Teva’s Bayit Vegan plant. Friedlander characteristically refused, treating it as a request to invade his home. Eli later described the uncomfortable situation in which he found himself:
I told him: “I can also go to court to request to carry out the inspection.” Friedlander thought a bit, and said: “O.K., I’ll let you see the plant, as if you were a tourist from America.” I took a walk through the plant and many people did not understand what I was doing there… It was in much worse shape than I thought. The smell of medicines permeated the premises and cardboard boxes containing medicines and other products filled the halls. I was shocked… In the end, this didn’t really change anything as far as I was concerned. I knew that I was buying neither the building nor the people. I was buying products and a share of the market.
Indeed, this was a motto that would remain with Eli his entire life. He explained, “I was buying products that I knew I could sell abroad. In my mind’s eye, I could already see the plant and all its contents moving to a new location and assuming a completely different character.”
Eli’s visit finally convinced Friedlander that Eli was serious about acquiring Teva. Earlier, when Eli told him that he had acquired Feuchtwanger’s shares in the company, Friedlander seemed to believe that he would be able to retain control through his influence over IDB. He had managed to prevent Fuechtwanger, his own relative, from interfering in the company. The same was true of the Industrial Development Bank, so Friedlander was certain he would be able to hold off Assia as well. He was mistaken. Once Eli asked to tour the plant in Bayit Vegan and informed Friedlander of his intention to win the tender for the Teva shares held by IDB, Friedlander finally understood the seriousness of Eli’s intent.
This revelation prompted Friedlander to introduce a new entity into the equation. Far from giving up his plant, he now tried to bring in a partner of his own: a white knight in the parlance of corporate takeovers. Dr. Reuven Hecht, who was the owner of the Dagon grain silos, was a personal friend of Friedlander and a wealthy man with a long résumé of achievements. Friedlander was certain that if Hecht were to win the tender, he would be able to continue controlling the company in the future. For Eli, Friedlander’s maneuver meant that he now faced serious competition. Unlike Friedlander, Hecht was known as a successful figure capable of struggling obstinately to achieve his goals. Faced with this new situation, Eli concluded that the price he had offered Fuechtwanger would no longer suffice and that he would have to raise it. He knew that he was taking a great risk in doing so, but he had no other choice if he wished to gain control of the company. He was also convinced that an experienced businessman like Hecht would have no interest in investing the sum that Assia was willing to invest.
Working with Moshe Shamir, Eli submitted his proposal. This time, Assia offered 2.50 Israeli pounds per share, which was much higher than Hecht’s offer, the price that Eli had offered Fuechtwanger previously (2.05 Israeli pounds), and the stock’s value on the Tel Aviv Stock Exchange that day (1.40 Israeli pounds).
After winning the tender, Eli returned to Friedlander’s office in an effort to persuade him to sell his shares. Even then, after he had already effectively gained control of Teva, he promised Friedlander that he would be able to continue running the company. He did so out of recognition of Friedlander’s capabilities as a pharmacist and a desire to prevent Friedlander from establishing a company that would compete with Teva. He also acted out of a sense of compassion, based on the conviction that it would be cruel to strip Friedlander of his life’s work in one fell swoop. Friedlander once again refused, based apparently on his conviction that he could still foil the acquisition, even after Assia had prevailed in the tender to purchase the IDB shares.
True to form, Friedlander attempted to thwart the transaction using all means at his disposal. First, he made use of the Jerusalem Workers’ Council and 220 Teva workers headed by Claude Shenkar, inciting them against Eli on the premise that Assia was interested only in products and production lines. His final goal, Friedlander argued, was to dismantle the plant in Jerusalem and move it to Ashdod or Ashkelon. With the support and encouragement of the Histadrut, which then was led by Moshe Baram, who was the secretary-general of the workers’ council and later became an influential Israeli government minister, the workers’ committee took Friedlander at his word and declared a one-day warning strike, but to no avail.
Later, accompanied by Shenkar and Baram, Friedlander attempted to persuade Sanbar to nullify the tender based on the same claim: that Assia’s intention to dismantle the plant in Bayit Vegan in order to establish a plant in Ashdod or Ashkelon contradicted the government’s policy of encouraging the development of industry in Jerusalem. Eli, of course, denied this claim outright and sent Sanbar a letter pledging that the plant would remain in Jerusalem.
Once Friedlander realized that Baram also could not save him, he contacted the Ministry of Trade and Industry, which oversaw the operation of the Industrial Development Bank. His legal advisors claimed that the bank’s tender for the sale of its shares in Teva had been illegal because it stood in clear contradiction to the interests of the state. Ze’ev Sherf, the minister of trade and industry, phoned Eli himself to ask if it were true that he intended to dismantle the Jerusalem-based plant in order to open it elsewhere. At that point, Eli was unaware that he was speaking with Sherf and answered him as he had been answering others at the time: “We announced that we would leave the plant in Jerusalem and that is what we intend to do. It will be neither the same rundown plant nor the same workers working under the same unacceptable safety conditions. It will be a plant, the way a plant should be.” Next, Sherf instructed his director-general to ask the attorney-general of Israel if the bank under his authority had operated properly and according to the law. In response, he was provided with a well-substantiated opinion that documented the appropriateness of Sanbar’s actions.
Friedlander further sought to interfere by demanding Assia immediately purchase privately held shares of Teva at the price it had paid Fuechtwanger. Despite Assia’s publically proclaimed willingness to do so, the public response to the offer was limited. After all, Teva’s price on the stock exchange had already risen and shareholders now believed that Teva might have a bright future and that its shares would soon be worth more than they were at the moment.
In the end, Friedlander finally came to understand that his days of running Teva had reached an end. Rather than compromise and remain part of Teva’s future, he vowed to his associates that he would build an even larger plant to compete with Teva. His legal advisors approached Eli and conducted negotiations for Assia’s
purchase of Friedlander’s shares at a price comparable to the price paid to IDB. Although the price was high, Eli realized that severing Friedlander’s connection to Teva would be worth it. Attorney Yaakov Salomon (Nachman’s brother) analyzed the situation and advised Assia’s corporate management to pay Friedlander’s price in order to effectively put an end to his control of the plant and prevent trouble in the future. In the years to come, it would become abundantly clear that had been the right move.
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Eli again emerged victorious. Thanks to a sophisticated maneuver, he had acquired potential control of Teva’s non-voting and controlling stock. Eli now faced the challenge of raising the capital for the endeavor. Until now, all he had received were verbal commitments sealed by a handshake. Now, he needed to find the funds to move forward. Unlike during his negotiations with Zori, he was no longer overly concerned about the responses of the heads of the families – the owners of Assia. The company had sufficient funds at its disposal to pay for a large portion of the acquisition, but he still needed an additional 1.5 million Israeli pounds to purchase the shares. Plus when this was all taken care of, he would still need the authorization of Assia’s owners to seal the deal.
From the very outset of negotiations, Eli knew that the deal might not win the backing of the management, which would not hesitate to “throw him down the stairs,” as he put it, using a colorful modern-Hebrew expression, if he were to submit it to the board of directors on his own. He therefore asked the CTIC’s young representatives on the board to work with him on the initial phases of the negotiations. He had an excellent rapport with Melamed and Brown, who shared his world view. Once he came up with the idea, he worked with them on the details and, later, on the different phases of the negotiations. His first step was to convince them to have the CTIC begin secretly acquiring shares of Teva on the Tel Aviv Stock Exchange (at the time it was legal to purchase stock without reporting it), which they proceeded to do.
Eli Hurvitz and the creation of Teva Pharmaceuticals: An Israeli Biography Page 14
