Teva: Warren Buffett Messed Things Up For Short-Sellers

(Bloomberg Gadfly) -- It's not like there was any real risk in shorting an easy target like Teva Pharmaceutical Industries Ltd. Warren Buffett could come along to destroy your bet, but what were the odds of that happening?

Oops.  

It's not a happy Valentine's Day for Teva short-sellers. After the market closed Wednesday, a filing from Buffett's Berkshire Hathaway Inc. disclosed that it made only one new investment during the latest quarter. Unlucky for Teva bears, it was the Israeli generic-drug maker they've been betting against to the tune of $1.2 billion. That figure represents notional short interest in the company, according to financial analytics firm S3 Partners. 

Teva: Warren Buffett Messed Things Up For Short-Sellers

Teva's American depositary receipts surged about 8 percent in after-hours trading, leaving Berkshire's new 1.9 percent stake worth nearly $400 million. 

I can't blame short-sellers for trying. Teva's ADRs had collapsed by 65 percent between last August and November, as its best-selling product -- Copaxone, a medicine for multiple sclerosis -- met with competition from copycat therapies. It doesn't help that Teva, now a junk-grade issuer, is deep in debt after overpaying for Allergan Plc's generic-drug business in a $40 billion deal that closed in August 2016. Most analysts aren't confident that the business will make a substantial recovery this year after Teva's own management -- which has seen much turnover in recent years -- gave a disappointing outlook.

Teva: Warren Buffett Messed Things Up For Short-Sellers

For those reasons, Berkshire's involvement is surely a contrarian bet and not necessarily the right one. Even so, Buffett's sheer presence may be enough to send Teva short-sellers packing. 

Pharmaceuticals are also a bit outside of Buffett's wheelhouse, a sign that this may be another investing decision by his stock-picking deputies, Todd Combs and Ted Weschler. He's said one of them was responsible for turning him on to Apple Inc., despite his usual aversion to buying technology companies. 

The rest of Berkshire's always-much-anticipated quarterly holdings report was a bit of a snooze. The conglomerate cut more of its stake in International Business Machines Corp., as expected, and accumulated more Apple shares. Berkshire did make a big splash two weeks ago, though, when it announced that it's teaming up with Amazon.com Inc. and JPMorgan Chase & Co. to tackle health-care issues as it pertains to their employees, a warning shot to an industry that's long feared Amazon's inevitable arrival. 

Meanwhile, there's still no big M&A news from Buffett, who is expected to publish his annual letter to shareholders next week. He'll likely assure readers that the recent market hiccup doesn't change his feelings about the long-term health of America. In fact, a pullback in valuations may finally present more buying opportunities for him.

If Teva's the best "bargain" the famed investor could find last quarter, that's saying something. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.

To contact the author of this story: Tara Lachapelle in New York at tlachapelle@bloomberg.net.

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