Cephalon (CEPH) employees should brace for layoffs, in part because management is already promising some jobs will go and because the impending merger with Teva (TEVA) doesn't solve either company's strategic problems. None of this will worry CEO J. Kevin Buchi, however. He will walk out the door with a $5 million bonus after less than four months on the job.
Here's what Buchi told employees about layoffs in Teva's acquisition of Cephalon:
How many Cephalon jobs will be lost as a result of this transaction?To give you an idea of what "some jobs lost" means, check out page 24 of the investor slideshow accompanying the deal. It says:
We do not have a full answer to this question but there will be some jobs lost due to overlapping functions between the two companies.
Synergies: At least $500 million from the combined organization in annual cost synergies within three years.Teva needs $500 million in cost cuts because combining with Cephalon does not solve the looming loss of patent exclusivity on its Copaxone multiple sclerosis drug or Cephalon's Provigil/Nuvigil sleep disorder drugs. Copaxone's patent runs out in 2014. Provigil's runs out somewhere around 2012. At that point, cheap generics will hurt Nuvigil, which is the newer but similar version of Provigil.
Here's how that looks in terms of Teva's branded drugs revenues (click to enlarge):
Currently, Copaxone is 70 percent of its branded revenues. After the merger, Copaxone is only 47 percent of revenues, but Provigil/Nuvigil is another 19 percent. In total, Copaxone/Provigil/Nuvigil will form 66 percent of Teva's branded revenues.
So all the merger does is take Teva's 800 pound gorilla -- which currently occupies 70 percent of the room -- and reduce its size to 66 percent of the room. That's why there will be layoffs aplenty among Cephalon's 3,600 staff.
Don't worry about Buchi, though. He'll be just fine. You can read the details of his termination package "After or In Connection With Change in Control" on page 46 of this SEC filing. He gets $5 million for being CEO, the job he took just last December.