Sun finally shines over Taro

Indian drugmaker Sun Pharmaceutical Industries’ three-year battle for Taro Pharmaceuticals is over. The Israeli company’s promoter family surrendered its shares, honouring provisions of a failed merger agreement.

Sun Pharma Chairman & Managing Director Dilip Shanghvi has taken over as chairman of the board of Taro, an over-the-counter (OTC) drug specialist, with most of its operations in the US, Israel and Canada.

There were four other board appointments, said a spokesperson. Sun Pharma Whole-time Director Sudhir Valia has been named vice-chairman, while Shanghvi's son, Aalok, and Sun Pharma Director Hasmukh Shah were appointed directors.

Makhteshim Agan Industries former CEO Ilan Leviteh joins as an independent director. Makhteshim Agan Industries is one of the world’s major producers of agro-chemical products and among the largest industrial companies in Israel.

Sun Pharma and its subsidiaries gained management control of Taro with 48.7 per cent economic interest and 65.8 per cent voting rights on management decisions. Promoter Barrie Levitt and family had a 12 per cent stake in the company, but a crucial 41 per cent voting rights.

The Taro acquisition proved much cheaper than originally provisioned for. Sun Pharma paid $144 million (around Rs 650 crore), compared with the $434 million (Rs 1,950 crore) it had committed to pay three years ago for 100 per cent stake in the company. That amount also included refinancing Taro's loans worth $230 million (a little over Rs 1,000 crore) at the time.

Sun Pharma had acquired over 36 per cent stake in Taro over the past three years, with 23 per cent voting rights and spent close to $105 million (Rs 470 crore). It paid $39 million (Rs 175 crore) to attach the promoter shares at $7.75 (Rs 350) a share. Recently, Taro's management had said that its net debt has come down to $23 million (Rs 100 crore).

Taro, which has not announced audited results for the last three years, claims net sales of $360.5 million (Rs 1,600 crore) for 2009.

"We are excited about completing this transaction. We intend to build on Taro’s market presence in the US, Israel and Canada and its expertise in dermatology and pediatrics, along with specialty and generic pharmaceuticals, and over-the-counter products," Shanghvi said in a statement.

“In connection with the closing of the deal, both the parties, as well as Taro’s directors, have settled all outstanding litigation among themselves,” Sun Pharma stated.

The Taro promoters were bound to surrender their shares separately at the same time as the closure of an open offer, according to provisions of an option agreement that was part of the merger plan announced three years ago. Sun triggered the tender offer citing the agreement, following the Taro management's decision to walk away from the merger. Sun also filed cases in US and Israel courts.

The Barrie Levitt family was left with no option but to tender their shares or file an appeal to a larger bench, following a verdict from Israel’s Supreme Court earlier this month that went in favour of the Indian drug major.

The acquisition will help Sun Pharma gain a major foothold in the US and Canadian OTC market. Taro has an established franchise in dermatology and topical products in the US, in addition to generic products in cardiovascular, neuro-psychiatric and anti-inflammatory therapeutic categories.

Taro has strategic sales and marketing operations in Israel and Canada. It has factories in Canada and Israel that manufacture topical creams and ointments, liquids, capsules and tablet dosage forms, which complement Sun’s current manufacturing and development capabilities for the US.

Shanghvi said Sun Pharma would significantly increase the volume of production and approve further investments in research & development in Israel and Canada, especially in delivery systems and complex chemistry.

“With the scientific talent within Taro, Sun Pharma looks forward to increasing the number of product filings of higher complexity. Taro will benefit from Sun’s resources and international presence in order to bring a better future to all of Taro’s shareholders, as well as its employees,” he said.

Sun's shares rose to a 52-week high of Rs 1,984.70 on the Bombay stock Exchange today before closing 0.29 per cent higher at Rs 1,920.35.