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| Sun's 3-yr wait may be worth it |
| P B Jayakumar & Joe Mathew / Mumbai/ New Delhi Sep 09, 2010, 01:21 IST |
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The acquisition of Taro may come much cheaper for Sun Pharma than the $434 million it committed three years earlier, in the wake of Israel’s Supreme Court decision it.
With the latest development, Sun has a good chance to acquire Taro by paying around $142 million. If Sun decides to honour its earlier commitment of refinancing Taro’s loans, the Indian drug major will still save about $58 million, though had to wait for three years.
Industry observers say the plan of Sun Pharma chief Dilip Shanghvi is obvious. The company is mainly targeting the promoter stake of 12 per cent and will not push too hard to get those owned by other shareholders.
Sun will also gain a more healthy Taro, which claims to have posted 14 consecutive quarters of profitability and with a net debt of just $23 million. At the time of Sun Pharma announcing its plans to acquire Taro, the company was on the verge of bankruptcy and had huge debts.
 To attach the shares of promoter Barrie Levitt and family, Sun will have to pay only $37 million at $7.75 per share. Sun had paid $105 million for gaining 36 per cent stake with 23 per cent voting rights. By attaching the promoters’ stake — either voluntarily surrendered or Shanghvi going for another legal battle — Sun will get 64 per cent voting rights in the company with 48 per cent stake, even without any shares surrendered by minority holders. Already 28,882 ordinary shares had been tendered and not withdrawn from the offer.
According to the called-off merger deal, Sun’s offer was to acquire Taro’s complete equity for $230 million at $7.75 per share, a 27 per cent premium to its May 18, 2007, closing price of $6.10. In addition, Sun had agreed to refinance $224 million of Taro’’s net debt.
As a white knight to save Taro from bankruptcy, Sun Pharma also paid $45 million to bring immediate liquidity and to pay the creditors.
Minority shareholders
Most minority shareholders are unlikely to surrender their shares at the tender offer price of $7.75 per share, as the current prices of Taro are over $11 per share. In the wake of the Supreme Court order, Shanghvi said he would not raise the open offer price and requires $200 million to attach the rest of the shares, including those of the promoters.
Mark Mobius, chairman of Templeton Asset Management Company, who owns 10 per cent in Taro, has said he would not tender shares at $7.75, according to reports. Earlier, too, Templeton and other minority shareholders had opposed Sun’s offer at $7.75 and had even approached Israeli curts to block the deal.
“If they (minority shareholders) don’t want to tender the shares, they can remain as shareholders of the company”, said a Sun Pharma spokesperson.
Barrie Levitt and family are on the back foot now and their next move will be crucial in Sun’s access to Taro. Shanghvi expects Levitt and family to surrender their shares separately from the tender offer, as the Supreme Court has now ruled Sun’s offer can go ahead and provisions in its ‘Option Agreement’ have validity. The agreement was part of the merger agreement in 2007 and had given provisions for Sun to attach the promoters’ shares in the event the merger failed.
After the buy
Even if Sun Pharma is able to gain management control, integration may be difficult and will take time, note industry experts. Sun has no clue to the books of Taro, as the company has published audited results only till 2007.
Taro’s manufacturing unit in Canada, which produces two-thirds of its production in US, Canada and Europe, is now under the scanner of the US drug regulator, the FDA. If the company fails to address the quality issues, the FDA may ban Taro from selling products in the US and Canada. Sun’s one unit and its subsidiary Caraco’s facilities in the US are also under the FDA scanner. Sun’s interest in Taro was mainly to access its-over-the counter drug portfolio, said analysts.
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