Business Standard

Sun Pharma may stick to current offer price for Taro shares

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Despite mounting pressure from investors of Isareli company to increase price offered for its remaining stake, may stick to its current offer of $24.50 per share for Taro Pharma stake.

Following the opposition from Asset management, another investor, Raging Capital Management LLC, delivered a letter to the board of directors of Taro opposing the proposal by Sun to acquire the remaining outstanding shares of Taro for $24.50 per share.

In his response to the Business Standard query on plans of price rise for Taro shares, a Sun Pharma spokesperson said, "Our offer price is $24.5 and will not drop plans to buy the remaining stake."

Sun Pharma, which holds 66 per cent in Taro, announced its plan last month to acquire the remaining stake from Taro investors. According to Sun Pharma, its offer represents 25.96 per cent premium over the most recent closing of Taro's common stock.

In its mail to Taro Board, Grand Slam had demanded a minimum price of $48.5 per each Taro share. However, William C Martin, chairman and chief investment officer, Raging Capital Management, LLC, demanded a price of $71.9 per share.

Analyst believe the process of complete buyout will be time consuming as the negotiation will get hot. Deepak Malik of Emkay Global said, "It will take more time for the deal to conclude. Sun has nothing to lose if the negotiation goes on for more time."

After the legal battle prolonged for three years, Sun had completed the acquisition of controlling stake in the Israeli company in September 2010.

According to estimates, Sun Pharma would have to pump in $350 million to $370 million for 15 million outstanding shares with the price of $24.5 per share.

Agreeing to the views of Grand Slam Asset Management, Raging Capital wrote that Sun's latest offer is grossly inadequate and fails to provide full-and-fair value to Taro's minority shareholders.

In his mail, Martin, said, "Based on an average share price for the 60-days preceding the acquisition offer, Sun Pharma's enterprise value was $10.08 billion, or 24 times trailing 12-month ebitda (earnings before interest, taxes, depreciation and amortisation). On a fully consolidated basis, Taro contributed a substantial 30.9 per cent of Sun Pharma's pro-forma ebitda. In contrast, Sun Pharma's offer of $24.50 per share is equivalent to just 10.1 per cent of Sun Pharma's enterprise value.

The relative ebitda contribution from Taro indicates that full value would have to be $71.60 per Taro share in order to equal 30.9% of Sun Pharma's enterprise value. "

Raging Capital urged Taro Board either to appoint an advisor for further negotiation or conduct an auction to identify a buyer willing to pay a fair price.

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