Sun Pharmaceutical Industries Ltd has rejected an offer from Guggenheim Securities — the financial services company that advises Taro Pharmaceuticals — to buy out the former’s stake in the Israeli company for about $215 million.
Guggenheim had offered $15 a share in its May 27 letter. The offer was at a 7.2 per cent premium to the closing price of Taro’s shares as of June 1, Taro said today in a regulatory filing to the US Securities and Exchange Commission (SEC).
Sun Pharma is the largest shareholder in Taro Pharmaceuticals. It holds about 14.4 million shares, about 36 per cent of all outstanding shares.
In May 2007, Sun Pharma had agreed to buy Israel-based Taro for $454 million, but Taro unilaterally terminated the agreement after a year, as Taro’s fortune turned around. Since then, Sun Pharma has been in a prolonged legal battle to take over Taro, which mainly operates in the US market.
On May 29, Shailesh Desai, wholetime director of Sun Pharma, wrote back, saying Sun’s goal was to acquire control of Taro as it is entitled to under the agreements it had signed with it.
“The company’s board is disappointed that once again its good faith initiative to resolve the dispute was rejected out of hand by Sun,” Taro said in the filing to SEC.
The board continues to be concerned that if Sun succeeds in gaining control of Taro, Taro’s minority shareholders could suffer the same unfortunate fate as the minority shareholders of Sun’s majority-owned US subsidiary, Caraco Pharmaceutical Laboratories, according to Taro.
“We believe this transaction would be viewed positively by Sun’s shareholders, as it will allow Sun to monetise an illiquid, minority position, while realising a profit of over $140 million, more than double the size of its initial investment,” Alan D Schwartz, executive chairman of Guggenheim Securities, said in his offer letter to Dilip Shanghvi.
A decision on the validity of termination of the merger agreement by Taro is still pending before the Israel Supreme Court.
Taro promoter Barrie Levitt and family holds 12 per cent shares and by the Israeli law, they still command about two-third voting rights on management decisions. Sun Pharma, which invested about $105 million in Taro to acquire 36 per cent, has to acquire another 5 million shares to access about 12 per cent shareholding of the promoter family to gain management control of Taro.
Alan Schwartz said that in 2009 the Supreme Court of the State of Israel had suggested mediation as a mechanism to arrive at a negotiated business solution to the ongoing dispute between Taro and Sun Pharma and his firm was asked to explore whether there was a practical business solution that would serve the interests of both parties.
In his letter, Alan Schwartz said his firm was “highly confident” of arranging the purchase of the stock by institutional investors.