•••
Eli was furious. He regarded Levinson’s scheme as a “crime … an act of treachery.” He also immediately understood that if he did not fight fire with fire relatively quickly, he would lose control of Teva. He decided there was only one way to deal with the challenge: he found a large company that he could rely on to purchase shares of Teva and become a third partner in the group, alongside Koor and the founding families.
Four years earlier, 11 prominent business people in Israel founded the Danot investment company. Seeking to invest in and establish partnerships with high-quality industrial companies in Israel, Danot purchased P.B. Holdings, which owned the First International Bank, and several profitable factories. Danot recently had acquired a one-third share in Cargal, a large corrugated cardboard box company, and was in the midst of negotiations with similar companies. The founders of the investment company included Mark Moshevich, an owner of Elite and a former president of the Manufacturers Association of Israel. Eli had established a friendly relationship with Moshevich in the past and was thus able to persuade him to buy shares of Teva, especially since this coincided with his investment group’s aims. Eli’s close friend Dov Lautman was another founder of Danot and he assisted Eli as well.
Danot did not possess enough capital to purchase a substantial share in Teva. Eli therefore proposed to Moshevich and Lautman that Teva acquire a one-quarter share in Danot, becoming its largest shareholder, and be allocated 18 percent of the voting rights on the investment company’s board of directors. In return, Teva would privately allocate Danot 39% of its capital and voting rights. Moshevich, Lautman, and Eli signed a letter of intent and agreed to sign a formal agreement after the deal was authorized by both boards of directors.
On the morning of Tuesday, August 25, 1983, Eli paid an unexpected visit to the office of Koor CEO Yeshayahu Gavish and informed him of the deal. As might have been expected, tensions were high in the conversation that ensued between these two typically reasonable men. Eli accused Gavish of an “act of treachery,” while Gavish maintained that before Eli made a deal with Danot, he should have turned to Koor, which Gavish referred to as Teva’s “chief partner.”
“This is not how things are done,” he lectured Eli. “Not reporting a substantial deal to a chief partner is behaving like a thief in the night… I’ll see you in court.”
It was clear to Eli that Gavish, who had been aware of the attempted hostile takeover based on the secret purchase of shares over the course of two years, was either feigning ignorance or truly believed that all was fine and that a “chief partner” was permitted to amass an immense quantity of stock in a company without informing the corporate management or even the chairman.
“Yes, I’ll see you in court,” Eli responded angrily and walked out of Gavish’s office.
At this point, Levinson intervened and requested a meeting with Eli. The CEO of Bank Hapoalim argued that his actions had been “positive for the group, for the shareholders, and of course for Koor.” Years later, Eli characterized the difficult situation in which he found himself:
Levinson remembered me as a young boy from Tel Aviv with whom he had swiped a motorcycle and raced through the streets of Israel during the brief and wild period of our adolescence. He called me and said: “We decided to buy shares in Teva…. I don’t think we’ll take over the company…. You shouldn’t be angry with us and you should know that I am doing this out of respect for you. If I did not respect you, I would not be doing it.” I told him: “Thanks a lot for the respect, but forget about it. It’s not going to happen.” He told me that he already bought [17 percent of the stock] and I told him: “So what if you bought it? Every dog has his day. When you decide you want to sell it, the market will not want it. There will be an economic crisis and you’ll ultimately lose on this move. I have no doubt about it.”
Furious, Eli again was unable to restrain himself and promised Levinson that he would personally see to it that the founding families of Teva did not lose control of the company.
•••
The situation was problematic and troubling for Eli. During his three decades of service to Assia and Teva, he had always succeeded in upgrading the company’s stock in his own unique way. Now, his method had become a double-edged sword and the company’s founders regarded a Histadrut takeover as something that would put an end to their life’s work. In other words, the prestige that Eli had accumulated over the years was called into question simply because he had not considered that such a thing could happen. This is why he was so hurt and insulted. Not only had he been set up, he had been set up using guile and fraudulence. He felt as if were fighting for his life.
•••
The day after Eli’s meeting with Gavish, Koor applied to the Tel Aviv District Court for an injunction to prevent Teva’s board of directors from authorizing the agreement that Eli had devised with Danot. Late that evening, judge Yehoshua Gross issued the requested injunction in absentia. Eli summoned attorney Amnon Goldenberg, who got the injunction annulled the following day. On the same day (July 28), Teva’s board of directors convened for a special 5 p.m. meeting in which, with the support of a majority of the representatives of the founding families and despite the opposition of Koor’s representatives, it approved the Danot deal.
During this five-hour, tension-filled meeting, Koor’s representatives informed the board of directors that they would turn to the courts for a declaratory injunction stating that Teva did not have the authority to authorize the deal, as the decision needed to be made by a special general meeting of its shareholders. This request stemmed from the fact that a general meeting of shareholders was a forum in which, as the largest shareholder, Koor enjoyed a majority. Board members affiliated with the founding families, who controlled Teva despite holding only 25 percent of its shares, rejected the motion and approved the deal, at the advice of their legal counsel. The following day, the stock exchange was informed of the terms of Teva’s deal with Danot.
Eli had won the battle, but Koor still did not concede the war. After all, it still had some powerful cards left to play. Since the Teva-Danot deal was a private stock allocation, Levinson, Gavish, and their colleagues knew that Israel’s Securities Authority would have to approve it. They argued that the transaction amounted to “exploitation of the shareholders whose holdings would be diminished … [which was] a fact that the stock exchange could not ignore.” They were certain that the deal would not be approved. Because Danot was a financial company, the deal also had to be approved by the Bank of Israel, which Koor officials assumed would also annul or at least delay its execution. At the same time, Koor’s legal advisors again applied to the Tel Aviv District Court and were granted another temporary injunction preventing the Teva board of directors from finalizing the deal with Danot until a general meeting could be held.
Koor fought Teva on all possible fronts to annul the deal; it was clear to Eli that it would not let up. He therefore sought compromise. Despite his anger, he was realistic. He understood that the Histadrut-owned company held 41 percent of Teva’s stock and that the founding families held only 25 percent. He also understood that although taking on Danot as a partner would diminish Koor’s holdings in the company, it also would diminish the holdings of the founding families, making it uncertain whether they would be able to rid themselves of Koor.
The Koor leadership also realized that Eli and the founding families would not surrender so they too regarded compromise as the only solution. Both sides began working toward a settlement.
The negotiations between Eli and a few members of Teva’s corporate management, on the one hand, and Gavish and his aides on the other hand, clearly reflected that neither side was situated in a position of power that would guarantee a decisive victory. Eli sought a compromise in which control would be split evenly, even though Koor held a much larger share in the company than the founding families. Another issue that needed to be resolved
was who would control Teva in practice: the founding families, under the leadership of Eli and the corporate management he had built in recent years, or Koor and the Histadrut’s Hevrat Ha’ovdim.
During a private conversation that preceded the beginning of official negotiations, Eli informed Gavish that he was willing to split the seats on the board of directors evenly between the two companies, in accordance with Koor’s precondition, but demanded that actual control remain in the hands of the founders. He had already explained to the families’ representatives that this was the best possible compromise: that even though they held much fewer shares than Koor, Teva would remain in their control in practice.
At the end of the day, despite the weaker position of the founding families’ shareholders, Koor accepted the compromise. Levinson understood not only that he could not take over Teva as he desired, but that Eli’s response – the Teva-Danot agreement – had the potential to relegate him to a minority position. He also recognized that Eli’s management of the group had been so successful that it made good financial sense to accept his demand that he retain practical management. In other words, with its own best interests in mind, Koor now agreed to have the representatives of the company’s founders continue running the group.
The two parties agreed that neither one would take action to diminish the share of the other by means of private allocation, except in the case of the agreed-upon addition of a third partner. It was also decided that the 24 members of the board of directors would be split evenly between Koor and the founding families, that Eli would continue serving as CEO, and, according to an unwritten understanding, that if he were to step down, Koor would be able to propose its own CEO. The founders were granted the right to recommend a chairman of the board of directors and a chairman of the executive committee, and founding family representatives Moshe Shamir and Meir Heth were elected to fill the positions. It was also decided to terminate the legal proceedings between the parties and to annul the letter of agreement between Teva and Danot.
Danot had already taken steps to annul the agreement, understanding that the legal dispute between the parties in control of Teva would ultimately prevent the deal’s execution. At the same time, Danot encountered serious solvency problems. Its debts, which now amounted to 3.2 billion shekels, continued to rise and it was not at all certain whether it would be able to live up to the terms of the agreement or whether the deal would be approved by the Bank of Israel. Eli was understanding about Danot’s retreat from the deal, but asked Moshevich and his colleagues to refrain from making a public announcement on the matter since that was likely to weaken his negotiating position vis-à-vis Koor. Only after the compromise agreement between Koor and Teva’s founders was made public was an announcement released to the securities exchange and the press regarding Danot’s retreat from its letter of agreement with Teva.
•••
Eli learned a great deal from the drama with Koor. The most important lesson was that from that point on, he would have to be more vigilant in protecting his group against a hostile takeover; this attempt was unsuccessful due only to his resourcefulness. In this case, he had been complacent and perhaps even naïve – two qualities that had no place in the modern business world.
Another lesson was just how important it was that practical control of the group remain in his hands and the hands of its management. He was not concerned about the parity that had been forced upon him in the board of directors, as the board members representing Koor and Hevrat Ha’ovdim would also understand that the board was obligated to operate in the interest of the shareholders alone. This is how it had operated in the past and this is how it would operate in the future. He was, however, concerned about interference in the group’s day-to-day operations, especially after agreeing, as part of the compromise, to establish a financial oversight committee presided over by Shevach Ofir, Koor’s powerful and intimidating chief of finances. Although the committee had been intended to perform the executive function of overseeing Teva’s expenditures, and, in essence, to control the company, Eli turned it into little more than a reporting committee.
“The committee that was established was supposed to receive reports on actual expenditures and nothing else,” Eli explained. “I instructed Dan [Susskind, Teva’s chief financial officer] that control of the group’s financial apparatus rested in his hands and no one else’s…. That’s what Dan did. It is no wonder that Shevach Ofir had arguments and complaints…”
Finally, Eli knew that he still had a score to settle with Levinson which, as far as Eli was concerned, had not been resolved by the agreement. Levinson had hurt and insulted him. He got along fine with Gavish and Blumenthal, but he continued to see Levinson as personally responsible for the near dissolution of his life enterprise. Therefore, immediately following the signing of the compromise agreement, he continued searching for a third partner that Teva and Koor would find acceptable. He simply did not trust the Histadrut-owned company.
“It is urgent that we find a party to serve as a deciding factor between the groups,” Eli explained. “The only limitation is that it not be a financial investor, but a strategic force.”
•••
In February 1984, while he was the subject of serious suspicions stemming from irregularities in his work, Levinson committed suicide. The tragedy was painful for Eli. He was sorry about the character assassination that had been carried out against Levinson. According to Eli, Levinson “did not deserve it…. He had worked in the interest of Hevrat Ha’ovdim…. Had I been in his place, I would have also tried to take over a company like Teva.”
Chapter 15
Conquering America: The First Steps
In Eli’s eyes, Teva’s future momentarily hung in the balance. The failed hostile takeover attempt changed his agenda. After signing the agreement between Koor and the founding families on December 9, 1983, one of his main goals was finding a third company that could join the group as a partner and that, to some degree, would reduce his dependence on Koor. At Eli’s urging, the families increased their purchase of Teva shares from various sources, ultimately boosting the share of company stock in their possession in the course of 1984 from one-quarter to one-third. Meanwhile, Koor increased its stock holdings by only one percent, so the relationship changed to 42 percent to 33 percent. Nonetheless, Eli was convinced it was vital to quickly find a third partner. Otherwise, he feared that the Histadrut-owned company would exploit its power again. After signing the agreement, he maintained very proper relations with Koor’s leadership, which allowed him to continue managing Teva. However, Eli had been burned and he had no intention of being burned again.
Eli also sought a third partner for another reason: acquiring a pharmaceutical company that could serve as a fulcrum for Teva in the massive US market. Eli had aspired to export Assia products to the United States since the early 1970s. This first became possible thanks to Assia’s deal with American Cyanamid at the beginning of that decade, however this agreement only involved the export of chemical and veterinary nitrofuran products to the United States. Eli later realized that despite its lucrative nature, the export of veterinary products was no substitute for entering the US pharmaceutical market. He also learned that in order to enter such an enormous market, he would need to acquire an American stronghold. Although he had not yet done so for various reasons, he would later state, “It remained in my thoughts … I was waiting for an opportunity.”
At the beginning of the 1980s, a total of $100 billion in pharmaceuticals were sold around the world annually and forecasts anticipated the pharmaceutical market would grow 6-8% a year over the next decade. The population of the United States alone42 consumed approximately one-fifth of all the pharmaceutical drugs sold worldwide, making the US Teva’s most important and potentially profitable target. This led Eli, his management team, and Teva’s board of directors to resolve to work toward entering the US market. In order to be certain of their course, since break
ing into the US market would be extremely expensive, Eli and his colleagues asked the American consulting firm Channing Weinberg to examine their intuitive assumptions. After a comprehensive assessment that took approximately one year to complete, the consultants reached similar conclusions. It was now the time to translate these conclusions into concrete plans and put them into action.
The opportunity to enter the US market presented itself following Teva’s acquisition of Plantex and Ikapharm in the early 1980s. Plantex had received FDA authorization to manufacture four chemical products, although it had yet to do so. Ikapharm was also ripe to enter the US market and following its acquisition Teva made efforts to acquire FDA approval to manufacture and market a number of its products in the United States. An equally important piece in this puzzle was having a US office; Plantex’s management had opened an office in Hillsborough Township in Somerset County, New Jersey, under the direction of Maury Moskovitch, a Jewish American who engaged in the registration and marketing of chemical and pharmaceutical products. This office became a strategic base for Teva’s activities in the United States.
“All of a sudden, we had a strategic stronghold in America…” Eli recounted with wonder.
In 1982, several Ikapharm products received FDA approval. One-and–a-half years later, Teva made a public issuance on the Tel Aviv Stock Exchange. One of the main goals of doing so was to raise tens of millions of shekels to modify, upgrade, expand, and make the sterile department of the Kfar Saba plant compliant with FDA standards and good manufacturing practices (G.M.P.).
At the same time, Dan Susskind paid a visit to New York to register Teva on the NASDAQ. Eli insisted that the expansion of activity in the United States be accompanied by the establishment of a local financial base.
Eli Hurvitz and the creation of Teva Pharmaceuticals: An Israeli Biography Page 25
