Fresh Teva Lawsuit Goes Against Dividends Paid by Debt Heavy Drugmaker
Tel Aviv-based capital investment firm Tulip Capital is threatening derivative action against Teva, saying the company's huge debt load renders its dividends unlawful
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Tel Aviv-based Tulip, which holds Teva securities and bonds in its investment portfolio, launched preliminary proceedings against the drug maker in an Israeli district court Tuesday. Tulip demands that Teva would hand over data and documents related to its recent dividend payments, and threaten derivative action.
Teva. Photo: Bloomberg
According to the court filing, Teva's financial and business situation has worsened considerably in recent times, resulting in significant monetary losses and write-offs and a continuous erosion in value. The company has been lowering its outlook every quarter for the past few quarters, the complaint continued, and is now intending to terminate thousands of its employees in an effort to overhaul the company.
Teva has been seeing revenues fall due to increasing competition and regulation in the generic drug U.S. market, and its forecasted revenues are also impacted by the launch of generic versions of its multiple sclerosis drug copaxone, which generated the company around $40 billion in the last two decades. It $40.5 billion acquisition of Allergan Generics in 2016, for which it took out extensive loans, landed the company with a debt of over $34 billion and increasing doubts about the company’s ability to meet its debt covenants.
On Monday, Teva's new CEO Kåre Schultz outlined the company’s rehabilitation plan, which will see the company merge its generic and specialty businesses under one commercial roof and pivot back towards a greater focus on generic drugs. Two weeks ago Calcalist reported that Teva would cut thousands of jobs in the U.S. and Israel as part of the planned reconstruction; this is unrelated to the layoffs the company announced after its disappointing second-quarter reports, published August.
Teva’s worsening situation did not prevent the company from announcing the payment of dividends worth hundreds of millions of dollars in its third-quarter reports, published earlier this month, the complaint said, even though the company lowered its financial outlook for the year again in the same report. The disappointing report caused a further 20% drop in the company's stock, the complaint said, and a further drop in Teva's credit rating, with Fitch Ratings Inc. reducing Teva to junk bond.
Teva's financial cutbacks on the one side and its excessive dividends on the other side are not the actions of a responsible board or a company trying to remain solvent, the complaint continued. The complaint claims that under the circumstances, and taking into accounts Teva's debt load of over $34 billion, Teva's executives should not have permitted the recent dividends.
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Tulip is asking the court to compel Teva to hand over all documents relating to dividends paid during the past nine months, including board meeting protocols, presentations made to the board around the time of the dividends were approved, predicted company cash flows and professional assessments.
A Teva spokesman said that the company would respond as part of the legal proceedings.
