Though soft-spoken, Dilip Shanghvi, billionaire entrepreneur and CMD of Sun Pharmaceuticals Industries Ltd, has no plans to take Taro?s Wednesday missive lying down.
In a reply to Israel?s Taro Pharmaceutical Industries Ltd?s chairman Barrie Levitt, who had stated that Taro would terminate its year-old, $454-million merger agreement with Sun Pharma, Shanghvi threatened to pursue all options, including legal proceedings, challenging Taro?s right to terminate the merger agreement.
Stating that Taro is ?not entitled to terminate the merger as per our agreement,? Shanghvi said the Israeli company has failed to honour its side of the bargain and take actions to consummate the merger. He asserted that Sun, on its part, has made every effort to fulfill its obligations under the merger agreement. ?We remain skeptical of Taro?s turnaround,? he said.
Reacting to the news of termination, the Sun Pharma stock fell 5% on the BSE on Thursday to close at Rs 1,388.
Though Sun is not ready to give up, analysts welcomed the cancellation of the deal. Ranjit Kapadia of Prabhudas Liladhar says, ?Sun Pharma?s margins would have suffered had the merger taken place, as Taro Pharma is just breaking even. Also, it has an advantage since Taro?s share price has risen from $6.6, when Sun bought it, to $8.75 now.? Sun Pharma holds 34.4% equity in Taro.
The Taro board, which had unanimously voted to terminate the merger agreement, felt the deal was not in the best interests of the company. Its financial advisor, Merrill Lynch, had advised the firm that Sun Pharma?s offer was financially inadequate.
A piqued Shanghvi stated, ?Taro has only $47 million in cash as of March 31, 2008. This means that, if not for Sun?s cash injections of approx $60 million last year, Taro would have had virtually negative cash?hardly the ?dramatic? improvement of which Taro has boasted. Without our investment, Taro would not have been able to meet the bond payment due within days of our first investment.?