Sun Pharma to pay $600 mn for balance stake in Taro

Offer price raised 60% Israeli firm to be delisted

The Sun Pharma-Taro saga that began more than five years ago has entered a new phase, with Sun raising its offer price for the remaining shares of Israeli major Taro Pharma by as much as 60 per cent. Sun Pharma, the country’s largest drug maker by market value, holds 66.5 per cent in Taro. It will have to cough up about $600 million for the remaining shares under the new offer.

However, within hours of the announcement, minority shareholder Grand Slam Asset Management in an open letter urged Taro’s shareholders to reject the new offer.

Sun Pharma, which has been engaged in a long-drawn battle for complete control of Taro, had offered $24.50 a share to acquire the remaining shares in October 2011. On Monday, it announced it was ready to shell out $39.50 a share, triggered by a demand made by minority shareholders and Taro’s rejection of its earlier offer. The Sun stock price went up 0.95 per cent to close at Rs 682.05 on the BSE on Monday.

THE RATIONALE

• High growth in Taro’s revenue
• Taro Board’s earlier rejection of Sun’s $24.5/share offer
• Demand for a higher price by minority shareholders

Earlier, the US-based equity fund Templeton Asset Management had backed Sun Pharmaceuticals while it was trying to fully acquire Taro. Templeton Chairman Mark Mobius had come out in support of Sun in 2009. Templeton had a minority stake in Taro. Subsequently, in 2010, Sun had bought 12 per cent stake in Taro Pharma from Templeton Asset Management at $82 million.

Although the Taro board approved Sun’s new offer, Grand Slam Asset Management said it believed “Taro was worth at least 15 times the latest 12 months’ earnings before interest, taxes, depreciation and amortisation (LTM Ebitda) based on comparable publicly traded companies and similar generic drug company merger and acquisition transactions. Sun’s offer of 7.2 times the LTM Ebitda is demonstrably low”.

Last year, minority shareholder Raging Capital, which holds five per cent in Taro, had written to Taro’s board of directors, demanding a price of $71.9 a share. Grand Slam had demanded a minimum price of $48.5 a share. The shares of Taro closed at $40.97 apiece on the NYSE on Friday.

If the deal went through, Sun planned to delist Taro from the NYSE, said a company statement.