Teva Pharmaceuticals, the largest generic-drug company in the world, announced on Thursday it will lay off more than a quarter of its global workforce, or some 14,000 people, within the next two years.
In response to the proposed layoffs, the Histadrut labor federation pledged to hold a general strike on Sunday morning, shutting down Ben-Gurion Airport, government offices, the Tel Aviv Stock Exchange and public transit.
Teva’s shares rallied on Thursday in light of the proposed cutbacks, rising more than 13% on the TASE.
Some 1,750 workers are to be let go in Israel, or a quarter of the local workforce, according to the Histadrut. The revised tally is half the estimated layoffs published on Wednesday.
Most of the affected employees should be informed within 90 days, and half the planned layoffs will take place in 2018, the company estimated. Severance pay for the laid-off employees may total more than $700 million, it said.
“Today, we are announcing a comprehensive reorganization plan that is vital to restoring Teva’s financial security and business stability,” Teva CEO Kare Schultz said. “We are taking immediate and determined action to reduce the company’s cost base in all its global business operations in order to become more efficient and profitable.”
Politicians from across the political spectrum slammed Teva, saying it had benefited from NIS 22 billion in tax deductions and public subsidies.
Prime Minister Benjamin Netanyahu called Schultz just before the layoffs were announced and asked him to minimize the damage to Israeli workers.
According to the Prime Minister’s Office, Netanyahu expressed concern about the state of the company and asked Schultz to try to minimize the impact of the company’s restructuring moves on workers in the periphery, who are expected to be hit particularly hard by the firings.
According to the PMO, Schultz said the firm would take “supreme efforts” to reduce the damage to its workers.
Netanyahu also told Schultz he needed to do “everything possible to preserve Teva’s character as an Israeli company,” something the CEO said he would do, the PMO said.
In a letter to Netanyahu, Schultz expressed remorse for the cuts but defended them as fiscally imperative.
“I am committed to maintaining Teva’s global headquarters in Israel, including my office,” he wrote. “I do this as part of my commitment to Israel and with maximum confidence in the potential for our success here in the long term.”
A number of Teva’s Israeli factories reportedly will be sold, including the plant in Kiryat Shmona, where hundreds of workers protested on Thursday.
Two factories in Jerusalem, employing some 1,100 people, reportedly will be closed. Teva will also try to sell its logistics center in Shoham. Other facilities, Teva Tech in Neot Hovav and its Kfar Saba site, will remain mostly unaffected for now.
Teva also plans to suspend paying its dividend on ordinary shares immediately, while dividends on preferential shares will be evaluated each financial quarter. The company said it would not pay annual bonuses in an attempt to try to reduce costs by more than $3b. by the end of 2019. It has an estimated cost base of $16.1b.
Teva faces steadily dropping generic-drug prices in the United States, as Food and Drug Administration regulators are making it easier for competitors to enter the market. In October, the FDA approved a competitor’s generic drug for Teva’s blockbuster Copaxone, which is used to treat multiple sclerosis. That hit its revenue stream hard, since Copaxone reportedly contributed more than 40% of the company’s operating profit for the first three quarters of 2017.
Yearly cash flow is expected to fall from $5.8b. last year to $3.25b. for 2017, according to TheMarker.
This affects Teva’s ability to pay off its massive debt of around $35b. Teva took out loans to make an ill-fated purchase of Allergan’s generic-drug unit in 2016.
The company plans to unveil its full 2018 forecast in February, hinting that it was considering divesting more non-core assets, including other manufacturing plants, R&D sites and offices.
Schultz, who became CEO in November and at his previous company also laid off thousands of workers, defended the measures.
“These are decisions that I do not take lightly, but are necessary to ensure Teva’s future, and we will implement these changes with fairness and respect for our colleagues all over the world,” he said in a press release.
Teva employs more than 56,000 people worldwide, with about an eighth of all employees based in Israel. It has added thousands of workers within the past two years, partly due to its 2015 acquisition of Activis.
Herb Keinon contributed to this report.