The recent downturn has shown how quickly Indian entrepreneurs can respond to falling demand and how fast they can bounce back after so severe a hit. Of course, they?re blessed with a huge market to cater for, but it?s nevertheless a jungle out there as the tariff war in the telecom space has shown us. In all this, Dilip Shanghvi, the man who set up Sun Pharmaceuticals, stands out as a businessman with tremendous tenacity, a man with his feet on the ground not willing to be carried away by any kind of hype. That Mark Mobius, the reputed emerging market fund manager, has been compelled to switch sides in the battle for Israeli drug firm Taro Pharmaceutical Industries is more than ample evidence of this.

Ever since Sun Pharma picked up a 25% stake in Taro for $60 million in May 2007, following it up with a secondary market purchase of another 11% for an additional $45 million, Mobius, whose Templeton Asset management owns a 10% share in Taro, has been complaining that minority shareholders deserved a higher price than the $7.75 that Sun was offering. More than two years down the line, he seems to have realised that he?s perhaps been backing wrong horse; the Levitts, who control Taro with effective voting rights of 41%. Mobius is now carping about unaudited balance sheets and has said it is important to hasten the takeover of Taro by Sun Pharma. Taro reported that it had posted a profit of $33 million on revenues of $276 million for the nine months to December 2009. Of course, in a recent interview Mobius clarified that it was not a matter of backing Sun Pharma but taking action in the wake of the proposal by the current Taro promoters and controllers to absolve their directors of any responsibility for the audit of the accounts of the company. However, it is a fact that Templeton has withdrawn its motion for a special tender offer to be made by Sun Pharma. And with a largish stake of 10%, Mobius can?t afford to go wrong.

The battle for Taro is far from over because although two independent directors were not re-elected at a recent annual general meeting, nine of the directors on the board have been re-elected and Sun Pharma has no board seat just as yet. Also, the company has just suffered a reverse in the district course. Moreover, the Israeli Supreme Court?s judgement on whether Sun Pharma needs to make a special tender offer or an ordinary offer will do is still awaited. That?s something the Levitts have been trying to delay because once the open offer to minority shareholders is complete, the Levitts have to ?contemporaneously? part with their shares, selling it to Sun Pharma. So far Dilip Shanghvi has managed to hang in there and with a bit of luck should manage to get what?s rightfully his. Taro should follow the several other acquisitions that Sun Pharma has made; Sun has completed 14 acquisitions (excluding Taro) since it was set up in 1983 and almost all of them were loss-making units. Most of these have been turned around. Among the recent acquisitions was that of the assets of Able Labs for $23 million and 100% of Chattem Chemicals in the US.

There are others who could follow Shanghvi?s sober approach of picking up distressed assets and not always paying top dollar. In other words, not biting off more than one can chew. In the very same pharmaceuticals industry, another player Wockhardt has made a mess of its acquisitions. A perfectly sound business has been brought to the brink of bankruptcy. No one faults Habil Khorakiwala for having attempted to take the inorganic route to growth. But instead of settling for a couple of buyouts, which would have put the company on a faster growth track, Wockhardt ended up with nearly half a dozen companies. It bought out the Paris-based Negma for $265 million in May 2007 after acquiring the Irish generics firm Pinewood for $160 million in the previous year. Since there was easy money for the taking, the management went ahead and borrowed way too much and at one stage it had piled up a debt close to Rs 3,800 crore. Today it is asking bankers for a bailout. And selling off whatever assets it can?it recently sold some hospital assets to Fortis.

Instead of raising money through equity, Wockhardt chose to issue convertible bonds, which the company is unable to repay and are reportedly being bought by the banks as part of the Corporate Debt Restructuring plan. In fact, Wockhardt could have raised equity instead at a fairly good premium given that the stock markets were booming. It would have been far more prudent for the firm to go ahead with the Initial Public Offering of Wockhardt Hospitals at whatever valuation the issue was fetching. At the end of the day when the debt blew up in its face, it was not the promoters but the minority shareholders who bore the brunt of these decisions.

shobhana.subramanian@expressindia.com