Sun Pharmaceutical today won a significant victory in its three-year-old battle to acquire Taro Pharmaceuticals. The Supreme Court of Israel has supported the Indian drug company’s bid to acquire the outstanding shares of the Israeli drugmaker.
Following the verdict, Sun can go ahead with its tender offer, which is similar to open offers in India, to acquire ordinary shares, including those held by Taro promoters. Sun is the largest shareholder in Taro with 36 per cent stake. It, however, has 23 per cent voting rights on management decisions. The Barrie Levitt family owns 12 per cent stake, but with much higher voting rights of 41 per cent.
Sun Pharma can now put pressure on the promoters to tender their shares, based on the provisions of an option agreement that was part of the merger plan. Sun is likely to approach the court again should the Lewitt family decide not to surrender its shares.
Together with the promoter shares, Sun will gain 48 per cent stake in Taro with 64 per cent voting rights.
“We hope that better sense prevails. But if it does not, we would decide our next step in consultation with our lawyers,” said Sun Pharmaceuticals Chairman & Managing Director Dilip Shanghvi, when asked about the possibility of the Levitt family not tendering its shares.
Meanwhile, some minority shareholders such as Templeton Asset Management said they are yet to take a final call. “We want to take a look at the audited financial statements and then take a decision on whether to tender the shares, or go with Sun management, or when to tender the shares and at what price — it’s just a lot of options open to us,” Templeton Executive Chairman Mark Mobius told a television channel.
Sun has offered to pay $7.75 for each Taro share, compared to Pink Sheet quote of $11.40 a share. Pink Sheets are a daily quotation system for over-the-counter stocks. Unlike companies on a stock exchange, companies quoted on the Pink Sheets system do not need to meet minimum requirements or file with the US Securities & Exchange Commission.
“At this price, minority shareholders will not tender their shares… What Sun needs is the (Levitt) family’s holdings, without which it cannot hope to wrest management control,” said Ranjit Kapadia, vice-president (institutional research) at HDFC Securities.
However, Shanghvi ruled out raising the offer price at the moment and said Sun had not heard from the Levitt family so far.
At this price, the India’s largest drug company by market capitalisation would have to pay around $200 million (roughly Rs 930 crore) to acquire the outstanding shares of Taro, including those held by promoters.
In a statement issued today, Sun said that the Supreme Court unanimously dismissed the appeal filed by Taro against the previous ruling by the Tel Aviv District Court, holding that the country’s special tender offer rules did not apply to subsidiary Alkaloida Chemical Company Exclusive Group (Alkaloida) to purchase all outstanding ordinary shares of the Israeli company.
| TIMELINE May ‘07: Sun announces $454-million all-cash deal to acquire Taro May ‘08: Sun receives notice from Taro terminating merger pact; Sun cries foul, but triggers option to buy entire shares from promoter family Jun ‘08: Sun makes open offer for ordinary shares of Taro at $7.75 Aug ‘08: Tel Aviv court rules in favour of Sun: no special tender offer is needed Sep ‘08: Taro appeals in Israel Supreme Court, Sun extends offer Sep ‘10: Israel SC rules in favour of Sun, upholds Tel Aviv court decision |
Taro is headquartered in Israel, but 90 per cent of its sales come from the US and Canada. Sun's tender offer was triggered in June 2008 under a merger plan finalised by the two companies in 2007.
Sun said the court also lifted its temporary order that prohibited the closing of the offer prior to its ruling. The offer is now set to expire on September 14 and Alkaloida will provide a subsequent offering period of 10-20 business days.
Barrie Levitt and family hold two classes of shares: 2,600 promoter shares that entitle them to a 33 per cent share of voting rights in board resolutions and 4.8 million ordinary shares that give them 8 per cent voting rights. Sun said 28,882 ordinary shares had been tendered as of September 3 and not withdrawn from the offer.
Following the announcement, Sun Pharma shares gained 2.05 per cent on the Bombay Stock Exchange to close at Rs 1,756.25.
