TEVA PHARMACEUTICALS
Tel Aviv Stock Exchange / NYSE: TEVA Meeting Date: 7/31/2014
Teva Pharmaceuticals’ upcoming annual meeting will be rocked by an unprecedented “Vote No” campaign from two individual dissident shareholders who describe themselves as unintentional activists. The dissidents are encouraging other shareholders to oppose the re-election of a director nominee and the approval of a directors’ and officers’ liability insurance policy. The core arguments center around the lack of directors with global pharmaceutical experience and the board’s failure to respond to concerns about anti-takeover provisions in the Company’s articles of association, including the classified board structure and 85% supermajority voting requirements to approve certain transactions.
The contested nature of the meeting is unusual in Israel, where engagement with shareholders typically happens directly rather than through a proxy vote. In fact, the dissidents describe a public engagement process on these key concerns beginning in January, with the dissidents being led to believe that the board planned to address these issues prior to the annual meeting. However, the dissidents expressed disappointment when the board finally addressed only two key concerns–by reducing the board size by two members and nominating one director with global pharmaceutical experience–prior to the annual meeting. Other than this, the board’s statements provide no indication that it has addressed or plans to address the concerns regarding anti-takeover measures. Adding fuel to the fire, the dissidents believe that the failure to come up with more than one director nominee with global pharmaceutical experience in a six month recruiting process shows an absence of resolve to reshape the board in a manner appropriate to Teva’s business needs. Perhaps more shockingly, for motives not clearly understood, the board moved the annual meeting date forward by two months from its typical September date. In so doing, newly implemented rules in Israel allowing shareholder proposals to be submitted after the publication of the meeting notice were circumvented by a number of days; the Company’s restrictive policy on submitting shareholder proposals therefore prevented the dissidents from submitting new proposals to the agenda in response to the board’s perceived failure to respond adequately to the dissidents’ engagement efforts.
Teva, as one of relatively few Israeli companies with widely dispersed ownership among institutional investors, may serve as a bellwether for future engagement efforts in Israel, where the current deconstruction of pyramidal ownership schemes will result in increasingly dispersed ownership. If institutional investors, who comprise most of Teva’s largest shareholders but have remained publicly silent on this issue, back the dissidents under the belief that the board’s responses have been inadequate, Israeli boards may be prompted to more decisive responses to shareholder concerns in the future.