Taro rejects Sun’s settlement offers

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Mumbai: Israel’s Taro Pharma has rejected Sun Pharma’s two proposals for an out-of-court settlement saying it was ‘financially inadequate’ and has put across a counter-proposal instead. Taro suggested the companies go for a shareholder referendum, where shareholders would vote on a merger between the companies at an offer price of “Sun’s own choosing”. However, Sun Pharmaceuticals official accused the Taro board of trying to ‘sidestep’ the real issues. Analysts say that this will not be acceptable to Sun, and it may go to the Israeli Supreme Court saying no settlement was reached between the two companies.

With Sun Pharma on Monday making its settlement proposals to Israel’s Taro public, Barrie Levitt, the latter’s managing director, wrote to Sun’s CMD Dilip Shanghvi saying, “Both Sun’s merger proposal, as well as its tender offer alternative, involved prices that represented a significant reduction from the $10.25 price that Sun paid for Brandes’ 8% minority interest in Taro in February 2008, and which you proposed to pay in your revised merger proposal last May.”

The letter further said, “Since it appears that we both agree that a merger represents the most desirable format for an acquisition transaction…we are prepared to conduct a shareholder referendum, in which shareholders would vote, yes or no, on a merger at a price of Sun’s own choosing.” 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 Taro’s board could explain why it disagreed. “Templeton, as well as other shareholders, could also express their views, in whatever form they deemed most appropriate,” the letter added.

“It is very obvious that by suggesting a referendum, the Taro board is helping the Levitt/Moros families (the current promoters of Taro) to sidestep the option agreement,” the Sun spokesperson said.

Under the option agreement, signed at the same time as the original merger agreement, these families are bound to sell their shares to Sun, irrespective of the outcome of the shareholders’ vote on the merger proposal, the Mumbai-based firm said.

The Sun Pharma stock was down 0.25% on the BSE on Tuesday to close at Rs 1,041.20.

On Monday, Sun Pharma said its CMD Dilip Shanghvi had, on January 2, written to the Taro board placing before it two option of settlement, and also questioning Taro’s claims of an “impressive turnaround”, which, according to Sun, has been actually achieved by making drastic cuts on critical R&D investments.

The Mumbai-based firm in May 2007 offered to buy Taro for $230 million in cash and an additional $224 million to refinance debt. Under the agreement, Sun has the right to buy all Taro shares owned or controlled by the Levitt and Moros families at $7.75 per share and offer to buy the remaining stock at the same price.

In May 2008, Taro rejected a revised $10.25 a share offer from Sun saying it was inadequate, given the improvement in Taro’s operations.

Bitter pill

• Taro puts across counter-proposal

• Taro suggests the companies go for a shareholder referendum