The cold war between Sun Pharma and Taro Pharma is getting worse, with each of the parties continuing to wash their dirty linen in public. On Thursday, in a letter to Barrie Levitt, chairman of Taro Pharmaceutical Industries Ltd, Sun Pharma, which detailed the reasons why the company refused Taro’s plans to sell off its Irish subsidiary, said that Taro undervalued the Irish operations. In its letter dated May 28, Taro had accused that “Sun repeatedly refused to consent under the merger agreement to the sale of Taro Pharmaceuticals Ireland Limited.”
In its letter, signed off by Sun’s chairman Dilip Shanghvi, Sun Pharma, says, “Given the undervaluation mentioned above, and the fact that the identified buyer is personally close to senior Taro officials, we have doubts as to the arm’s length nature of this transaction. This close relationship between Taro’s management and the proposed buyer is especially troubling, given Taro’s repeated refusal to consider Sun as a potential buyer of the Irish facility on the grounds that we were a “related party” and the difficulties that Taro’s management claimed were inherent in such a transaction with a related party.”
In its press release, Taro had said that it had reached an agreement in principle after the date of the merger agreement to sell Taro Pharmaceuticals Ireland Limited (Taro Ireland), an Irish subsidiary of Taro that owns and operates the multipurpose pharmaceutical manufacturing and research facility in Roscrea, Ireland, to a group of Irish investors.
Sun Pharma says, “We had several reasons for withholding our consent to the sale of the Irish operations, including concerns regarding the sale process and the fact that the agreement in principle Taro reached with the Irish buyers significantly undervalued the Irish operations, the Irish operations presented Sun with considerable strategic and synergistic value as part of its merger with Taro; and the facility has the potential to produce substantial revenues for Taro in the future and any sale now is premature.”
Sun adds, “Any plan by Taro’s board of directors to divest the Irish facilities is part of a concerted effort to discourage Sun from pursuing its rights to acquire Taro. Our understanding is that to date, Taro’s Irish operations have been loss making since the time the Roscrea facility was acquired in March 2003. At no point in time during the financial crisis that precipitated the entry of the Merger Agreement, did Taro identify the disposal of the Irish facility as a measure to ease liquidity despite the monthly operating costs related to those operations. Nothing prevented you from pursuing this option prior to May 2007 during Taro’s most dire liquidity period. The Irish operations represent significant future business opportunity for Taro.”
The agreement in principle with this particular buyer significantly undervalues the entire facility – even if one were to take into account only the existing asset base and ignore any future growth potential.
If one were to add the potential revenue and profit from sales of products across Europe, the attractiveness of the Irish facility and operations increases multifold, Sun Pharma alleges.
“We understand that the proposed consideration for Taro Ireland includes earn-out payments based on future profits of the operations over a long period of time,”he adds.
?The travel for this story was sponsored by Mirae Asset Management