With investor rejecting deal, Sun Taro battle may drag on
Sun Pharmaceutical Industries has fought a long battle to buyout Taro Pharma. But now following a swettened deal to buy out minority shareholders, it has managed to win over the Israel-based and US-listed company's board. But the end may not be in sight yet with already red flag against the deal from a minority shareholder.
August 14, 2012 / 15:49 IST
Moneycontrol Bureau
Sun Pharmaceutical Industries has fought a long battle to buyout Taro Pharma. But now following a swettened merger deal, it has managed to win over the Israel-based and US-listed company's board. But the end may not be in sight yet with already red flag against the deal from a minority shareholder.Sun Pharma owns around 66% of Taro's ordinary shares and 100% of Taro's founders shares, representing about 77.5% of the outstanding voting power in the Israeli company.The company had offered USD 24.50 a share to buy out the remaining stake earlier, but that had been promptly rejected. Sun Pharma on Monday upped the offer by as much as 60% to USD 39.50 a share, which the board approved.But not all are convinced with this new offer, which was lower than Taro's Friday closing price of USD 41.10. Grand Slam Asset Management, a minority shareholder in Taro, has already issued a red signal to the deal and wants other minority shareholders to follow suit."We believe this offer to be wholly inadequate and intend to vote our shares against this transaction," it said in a letter addressed to fellow shareholders.Here's what Grandslam says is its rationale behind rejecting the new offer."On October 18, 2011, Grand Slam sent a letter to Taro's board of directors urging them to reject Sun's first offer of USD24.50 per share. At the time, Grand Slam believed that Taro was worth at least 15 times latest twelve months EBITDA based on comparably publicly traded companies and similar generic drug company merger and acquisition (M&A) transactions. Sun's offer of 7.2 times LTM EBITDA was therefore demonstrably low. Today's offer values Taro at 4.8 times LTM EBITDA, which is a 33% discount to the previous offer's multiple."Sun Pharma's fight with Taro's promoter Barrie Levitt and the board for a complete takeover dates back to 2007. In May that year, Sun Pharma and its subsidiaries had signed definitive agreements to acquire Taro in a deal then valued at USD 454 million.In May 2008, however, Sun received a notice for termination of merger from Taro. The board and some shareholders viewed that the 2007 deal undervalued Taro. But, Sun continued to pursue Taro and in June 2008 exercised its options under the option agreement to acquire all shares held by controlling shareholders. The tender offer commenced end of June 2008 and was subsequently extended several times after Taro went to court in Israel. Taro had also filed a case in the US to block the tender offer. But a US district court in July 2010 ruled in favour of Sun Pharma. In September 2010, the Israel Supreme Court also ruled in favour of Sun Pharma, saying Israeli special tender rules didn't apply to Sun arm Alkaloida Chemical Company Exclusive Group's offer.Following the court victories, Sun closed the tender offer and acquired a controlling stake in the company.With Monday's agreement, Sun Pharma intends to acquire all the remaining shares from minority shareholders and take Taro private. It will be wholly owned by Sun Pharma's affiliates and its ordinary shares will be no longer traded on the New York Stock Exchange. However, given that one minority shareholder has already objected to the deal and there's no word from the other shareholders, it looks like this battle is likely to drag on for some more time. Sun Pharma's shares, which rose 1% on Monday, were down over 2% on Tuesday at Rs 666.35.
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