“Problematic economic measures cannot be dictated. They must be agreed upon,” he said repeatedly to his fellow employers, who wondered why they needed to bother reaching an agreement with the Histadrut.
“A package deal is something positive,” Eli insisted firmly. “It involved everyone sitting together around one table in an effort to find the best solution for everyone.”
This is why he worked day and night to lay the foundation for the agreement.
“Managing a plant today is like managing a casino,” he explained. “Inflation eats up every good deal…. making it impossible to continue. We must reach an agreement.”
However, his hopes that this package deal would stop the decline were quickly proven wrong.
On September 13, 1984, Shimon Peres introduced his national unity government, which was based on a rotation with Shamir. During the first half of the term, Peres was to serve as prime minister and Shamir was to serve as foreign minister and vice prime minister. One of the first issues that the government, the Knesset, and the Israeli public focused on was the economic crisis, which continued to intensify.
In an effort to control the triple-digit inflation and stabilize the economy, the new finance minister, Yitzhak Moda’i, worked in full cooperation with Prime Minister Peres to institute a tough economic policy. At first, the Finance Ministry attempted to contend with the raging inflation using another package deal between the government, the employers, and the Histadrut; Eli supported this effort. He was also an advocate of three additional package deals that included the supervision and freezing of prices. The Histadrut agreed to wage erosion and limited breeching of the linkage mechanisms, that is to say, to the fact that wages and prices would only be partially linked to the Cost of Living Index, and the government announced deep budget cuts. At a ceremony on November 4, 1984, marking the signing of the agreement, which was limited to a period of eight months, Eli explained the deal’s logic as he understood it and why, under his leadership, the manufacturers had agreed to it.
“We each assumed a heavy burden,” he stated. “There is a calculated risk. The condition for success is that the timeout we allow the economy will create a state of calm in which everyone will do what needs to be done.”
Four months later, at the signing of another package deal, he proclaimed: “As a result of a good package deal, we’ve achieved an excellent agreement.”
Like the other signers of the economic package deals, Eli was proven wrong time and time again. The disadvantage of these agreements was the fact that they addressed only some of the country’s economic problems and had negative effects in other areas. The most difficult aspects proved to be supervising prices and the minimizing public expenditures by the government, the local authorities, and other governing bodies. As a result, inflation continued to climb, the balance of payments worsened, and foreign currency reserves declined. In July 1985, inflation skyrocketed to 27.5% per month – the highest index ever recorded in Israel.
•••
In July 1985, following the failure of the partial package deals, the government unveiled a new economic stabilization plan designed by senior Finance Ministry officials with the assistance of prominent economists led by professor Michael Bruno. The plan enjoyed the full support of Prime Minister Peres and finance minister Moda’i, who undertook to persuade all the involved parties of the plan’s critical importance and its chances of success. The determination and collaboration of the prime minister and finance minister were of particular importance to the effort due to the opposition to the program that emerged in some circles.
The government now received substantial support from the Manufacturers Association, led by Eli, and, to a great extent, from the leaders of the Histadrut, under Yisrael Kessar. Both institutions regarded the plan as another package deal that was much broader in scope than its predecessors. Eli and his colleagues understood the urgency of the moment and did all they could to get the plan instituted. In contrast to its predecessors, the proposed plan took into consideration all the elements of a comprehensive recovery plan and the interaction between them. The plan relied largely on government actions to carry out substantial budget cuts, primarily through significant reductions in subsidies and other expenditures, first and foremost in the defense budget. The Histadrut did its part by agreeing to a reduction in real wages in order to curb local demand. In return, the government pledged to do its utmost to prevent a major rise in unemployment. It also promised manufacturers greater encouragement of exports by enhancing their capacity for competition, implementation of a major currency devaluation, and a new exchange rate that would remain in effect as long as possible. In addition, Eli and his colleagues were asked to agree to another difficult concession: an administrative price freeze for a limited period of time.
Eli made great efforts to encourage the parties to approve the plan. Shortly after the talks began, when the participants started working on the details of the agreement, Eli raised the first stumbling block by proposing, in the name of Israel’s manufacturers, that the agreement include a section explicitly stating that the deal was also applicable to wage agreements. In this way, he sought to prevent a situation in which, during the implementation of the agreement, workers’ organizations would demand the revision of wage agreements in light of the hardships they were liable to encounter as a result of the financial decrees contained in the deal. In response, the Histadrut’s general secretary Yisrael Kessar, who vehemently opposed Eli’s proposal, stood up, gathered his papers as if to leave, and stated categorically: “I will not sign such an agreement. For me, this is something that cannot happen under any circumstances. I will not approve an agreement that mentions wage agreements.”
Eli requested a break to consult with his fellow manufacturers. Although he had made the proposal, he now persuaded them, in accordance with Kessar’s unequivocal appeal, to refrain from including the issue of wage agreements in the deal. In the presence of his associates, and subsequently in the presence of the other participants in the talks, including the Histadrut’s general secretary and his advisors, Eli explained that his change in position came “after Kessar made an oral promise that the Histadrut would do its utmost to maintain productive calm in the economy. Sometimes,” he said confidently. “An oral promise between us is stronger than a signed agreement.”
The dramatic announcement of the plan’s execution was followed by the phase of practical implementation in which all the parties – the government, the employers, and the workers, as represented by the Histadrut – were expected to fulfill their commitments. In hindsight, it was a success. By the end of 1985, it became clear that in contrast to previous efforts, the government now had the ability to implement substantial reform. Both immediate goals had been achieved: inflation was brought under control and dropped to an annual rate of close to 20%; and the budget deficit was reduced considerably. A major reason for this success was defense minister Yitzhak Rabin’s agreement to a dramatic cut in the defense budget, amounting to almost $650 million in the coming three years.
•••
Eli played a prominent role in all the developments related to the economic stabilization plan. During the process, he became a regular visitor in the office of Prime Minister Peres, who, in partnership with finance minister Moda’i, led the way to the plan’s fastidious implementation. Unlike Aridor, Moda’i welcomed him into the Finance Ministry and was keenly aware of his demands. At the same time, Eli forged a close working relationship with Histadrut general secretary Yisrael Kessar.
His fellow manufacturers also welcomed his work on the plan, even though some of the concessions he had made in their name were liable to harm their own interests. According to Dov Lautman, Eli’s deputy and subsequent successor in the Manufacturers Association:
Hurvitz undoubtedly led the business sector with a mighty arm. He can be tough and if he believes that something is right, he fights for it. But that does not
mean that he cannot be a man of compromise…. To our great fortune, he was leading the manufacturers during the great crisis of 1984-1985, when inflation climbed to more than 400% and the Israeli economy teetered on the edge of an abyss. I remember Hurvitz advocating a package deal for the economy that contained conditions that were extremely difficult for manufacturers to accept: they were forced to make a major concession in the form of a price freeze, when the currency value was dropping at a rate of more than one percent per day. Had it not been for his leadership, I have no doubt that the plan would have neither evolved nor been implemented.
According to Eli’s friend and neighbor, advertising and public relations executive Moshe Theumim:
Eli took upon himself the major responsibility of softening up the leaders of the economy who needed to make a contribution to the economic stabilization plan. He was a partner with extraordinary energy and charisma, which always served him as a professional tool, and a sharpness and tremendous willingness to dedicate himself to a goal.
In the fall of 1985, Eli was about to complete his second term as president of the Manufacturers Association and had no intention of presenting his candidacy for a third term. He had had enough. New challenges awaited him in the United States, which Teva was targeting as its main source of growth during this period, and he wished to return to Teva on a full-time basis. His fellow manufacturers, however, refused to accept his decision and urged him to continue on as president. It was precisely when the economic stabilization plan was being put to the test and Eli was regarded as one of its creators.
“For the manufacturers,” one newspaper wrote, “it is clear that only Eli Hurvitz can extricate them from the complications of the deals and perhaps even liberate them from their shackles.”
After many misgivings, Eli was left with no choice but to accede to the manufacturers’ appeals during their annual meeting on October 22, 1985. He conditioned his agreement on the stipulation that in the course of the coming year, 1986, he would vacate his post and be replaced as president by Dov Lautman.
Chapter 14
Thwarting a Hostile Takeover
During his four-and-a-half years as president of the Manufacturers Association of Israel, Eli remained actively involved in Teva. Although he spent fewer hours in his Petah Tikva office than he had during the previous five years, both he and the corporate management saw this as natural. Activities at Teva had become routine. Ikapharm and Plantex were gradually brought into line with the standards of Teva Jerusalem. The acquisition of new factories ceased almost completely, except for small companies such as Promedico. Teva was still in the early stages of establishing its presence in the United States; the only exception was its progress in joining the NASDAQ stock exchange.
The Teva group continued to expand and its performance, as reflected on the Tel Aviv Stock Exchange, improved significantly year after year. Growth became a permanent state of affairs; the only real question was whether annual growth would reach 10 percent or climb even higher.
Eli had reason to feel confident regarding the company’s day-to-day activities; its directors were competent and prepared reports for him to review at the end of each week. Eli issued instructions regarding various issues on the corporate agenda and intervened only when he found it necessary. The production lines became increasingly sophisticated technologically as time passed; automated machines were purchased regularly to replace older equipment. New products were constantly joining its offerings and by 1983, 250 Teva products were being marketed in Israel and around the world. Teva’s marketing system also continued to improve and the distribution of Teva products continued to expand. Overall, the company assumed a relatively calm trajectory of growth and expansion. Like other Teva corporate officers, Eli was pleased with the results.
This tranquility was upset in July 1983 when Dan Susskind, Teva’s chief financial officer, arrived at the Har Hotzvim office.
“I used to visit the plant on Fridays on a regular basis,” Susskind recalled. “It was not operating that day so it was quiet there. The guard told me that he had received an envelope. He asked me who he should give it to and I told him he could give it to me. When I opened the envelope, I was shocked. It contained a letter from the Koor group informing us, in accordance with the Securities Law, that they held a 41 percent share in Teva! Koor therefore was requesting that the number of its directors be increased from five to half the total number of members of the board of directors. This meant allocating seven more seats on the board of directors to its representatives.”
At the time, representatives of the founding families held 19 of the 24 seats, while Koor only held the remaining five.
Two days later, the Ampal Corporation, which Bank Hapoalim controlled, officially informed the Tel Aviv Stock Exchange that it was a shareholder in Teva and that it held “17% of the company’s capital.” Following this announcement, Koor informed the stock exchange that Ampal’s shares in Teva would be transferred to it.
The news heightened the panic among the Teva leadership. Eli was aware that the acquisition of Ikapharm and half of Plantex had cost Teva 20 percent of its stock since this was how Teva had paid Koor for the two companies. He was also aware that prior to the acquisition, Tius, a Histadrut-owned company, held four percent of Teva’s shares. However, Eli now learned that over the past few years, Ampal had secretly acquired 17 percent of the company’s shares, unbeknownst to Teva’s corporate leadership and in violation of the law (all companies were bound by law to declare themselves shareholders of another company as soon as they held more than five percent of its stock). While Eli and his colleagues in Teva’s corporate management could be accused of “sleeping on the job,” no one had dreamed that Yaakov Levinson, the CEO of Bank Hapoalim and a powerful force in the Histadrut’s Hevrat Ha’ovdim, would attempt to launch a hostile takeover of Teva.
Eli had been concerned about such a possibility during his initial contacts with Levinson regarding the acquisition of Koor’s two companies and had shared this concern with Levinson, as mentioned above. In response, Levinson had claimed that he was not interested in a takeover and sought only to rid himself of the burden of the two companies, one of which barely broke even (Ikapharm) and the other of which was losing millions of dollars each month (Plantex). Eli’s concerns were not allayed and he turned to Koor CEO Naftali Blumenthal, whom he trusted and respected. Blumenthal explicitly assured him that “no such thing would happen.” Eli accepted his assurances at face value and did not think it necessary to put them in writing; he always believed that an oral agreement with a trustworthy person was as good as a signed contract. Eli appeared to have forgotten that as powerful, trustworthy, and honest as he might be, Blumenthal was not the boss at the Hevrat Ha’ovdim, which controlled Koor: Levinson was.
Now, the fears Eli had harbored became a reality. The CEO of Bank Hapoalim wanted Teva. Levinson apparently had recognized that it was an excellent and profitable company and that taking it over would benefit both Hevrat Ha’ovdim and Koor, which would manage it directly. That year alone (1982-1983), Teva had generated a profit of 230 million Israeli shekels, which was much higher than that of Koor’s other companies. It is not clear if Levinson devised his plan for a hostile takeover when he was selling off Plantex and Ikapharm or later. After all, the payment Koor received in return for the two companies – 20 percent of Teva’s shares, in addition to the four percent controlled by Hevrat Ha’ovdim – constituted an excellent foundation for a takeover, especially since Teva’s founding families held only one quarter of the company’s shares. In any event, Levinson appears to have worked on the plan for quite some time, behind Eli’s back. He was certain that the CEO of Teva would firmly oppose it and for good reason.
Levinson used Ampal, a Bank Hapoalim subsidiary, to quietly buy a massive amount of Teva stock from private sellers and the stock exchange, arming himself with the additional 17 percent. Doing so secretly required employing a tactic that wo
uld not attract attention, such as surreptitiously regulating the trading of Teva stock. During the period in question (1981-1983), the Tel Aviv Stock Exchange was flourishing and the price of stocks of all the companies traded on it rose incessantly, though they did fall at times. Some stocks doubled in value, while others increased in value by hundreds of percentage points. During this period, however, the share price of Teva, whose quality was recognized by all, increased by only a few percentage points, and at one point, between August 1982 and January 1983 during the stock crash, plummeted sharply.
Everyone appeared to believe that because they were “held by long-term investors, mutual funds, and large financial institutions,” Teva stocks were fundamentally “stable,” as characterized by newspaper financial sections, and so they did not “run wild” like the other stocks. This was not the case. In actuality, Ampal personnel made sure that Teva’s share value did not rise. Using the immense quantity of stock in its possession, Ampal personnel periodically “threw” shares into the trading arena to keep their price from rising, sometimes even causing them to fall. They then subsequently purchased the shares back at a lower price, buying additional shares at the same time.
Rumors spread among brokers on the stock exchange, and later in the press, that the Danot investment firm was buying up shares of Teva. Other published reports spoke of indications of a major decline in Teva exports as a result of “intensified international competition,” “a delay in the devaluation of the shekel,” and “serious problems with company exports to Nigeria stemming from the African country’s entanglement in economic difficulties.” These reports, which appeared at a time that Teva was increasing its exports, had caused Teva’s share price to drop about 20% shortly before Koor’s announcement of its takeover, from 2650 points to 1955 points.
Eli Hurvitz and the creation of Teva Pharmaceuticals: An Israeli Biography Page 24
