Teva loaded $35B of debt to buy Allergan's generics arm, then wrote down $17B

In July 2015 Teva agreed to buy Allergan's generics unit, Actavis Generics, for $40.5 billion — $33.75 billion in cash and $6.75 billion in shares. To fund it, the Israeli company, already the world's largest generics maker, raised one of the year's biggest corporate bond offerings, in dollars, euros and Swiss francs. The deal closed on 2 August 2016 and pushed Teva's debt to about $35 billion.

The bet was that scale in generics would offset thinning margins. Instead, US generic drug prices came under pressure from insurers and pharmacy-benefit managers, just as Teva needed the cash. Interest on the acquisition debt added hundreds of millions of dollars to its quarterly costs; in the second quarter of 2017 alone, interest expense rose $151 million year on year.

The bill arrived fast. In August 2017 Teva cut its dividend 75%, from $0.34 to $0.085 a share, and the stock fell by almost half within days. It recorded a $6.1 billion goodwill impairment on its US generics business in the second quarter and another $10.4 billion in the fourth — $17.1 billion for the year. In December it announced it would cut roughly 14,000 jobs, about a quarter of its workforce.

Teva went through three chief executives in 2017: Erez Vigodman left in February, an interim followed, and Kåre Schultz arrived in September to sell assets and pay down debt. The case is now a standard example of buying at the top of a market with borrowed money.