Taro challenges Sun Pharma to shareholder referendum

Rejects Indian company’s revised offer for residual stake.

Israeli drug maker Taro Pharmaceuticals has challenged Sun Pharmaceuticals to hold a shareholder referendum to arrive at a fresh price, saying the Indian company’s revised higher offer to buy 64 per cent was not acceptable.

Rejecting Sun Pharma’s revised higher offer of $9.50 a share made Monday, Taro’s Chairman Barrie Levitt suggested a referendum in which shareholders could vote on “yes or no, on a merger at a price of Sun’s own choosing.’’

The two companies have been at loggerheads since May 2007, when Sun bought a stake in the then ailing Israeli company that subsequently opposed the buyout and fought cases in district courts in New York and Israel. The case is currently before the Israel Supreme Court, which had asked both parties to explore an out-of-court settlement in a month. The deadline expires January 8.

“Sun would have the opportunity to explain directly to Taro’s shareholders why it believed its proposed price was fair and in their best interest, and our board could explain why it disagreed. Templeton as well as other shareholders could also express their views in whatever form they deemed most appropriate,” Levitt said in the letter addressed to Sun Pharma Chairman Dilip Shangvi, which was filed with the New York Stock Exchange yesterday.

Levitt alleged that Shanghvi had “repeatedly refused” offers to acquire Sun’s 36 per cent stake in Taro at the same price Sun had offered to pay to acquire Taro last May.

“If you would not sell your Taro shares at the prices you have offered, why would you expect our public shareholders to sell their Taro shares to you at those same prices?’’ Levitt asked in the letter.

Taro said it was forced to take the step as Sun seemed to be interested in a “public relations battle” and “posturing itself advantageously in the eye of the Supreme Court”.

Referring to the outcome of the referendum, Taro said if the shareholders rejected Sun’s merger price, the Indian company would have to agree to a full standstill arrangement (no share purchases, proxy fights, or other shareholder proposals) for three years, in order to provide Taro with a fair opportunity. If the merger was approved, Taro would immediately agree to the terms.

Meanwhile, Sun may be forced to extend its tender offer to acquire the ordinary shares of Taro, which it exercised invoking provisions in an Option Agreement that was part of the failed merger deal. The court had asked Sun to extend the open offer till it decided on the validity of the tender offer.

“We will inform the court that we could not reach at any settlement and they did not accept our suggestions. We will abide by what the court decides,” said a Sun Pharma spokesperson.

If the court rules that Sun’s tender offer based on the option agreement is valid, Sun will get the 12.5 per cent stake held by Chairman Barrie Levitt and family.

This will increase its shareholding in Taro to above 48 per cent from 36 per cent. A favourable ruling will also allow Sun to exercise an option to convert 3.7 million warrants at $6 a share, which will take its shareholding to about 52 per cent with 68 per cent voting rights and a controlling stake in the company.