Sun Pharma announced its plans to acquire Taro in mid-May 2007 for a total value of $ 454 million (Rs 1789 crore), including equity purchase of approximately $230 million at $7.75 per share in cash.
So far Sun has made equity investments in Taro totaling $59 million, including $41 million to help the cash starved Taro avoid an impending payment default and another $18 million through the exercise of warrants. A few months ago, Taro had postponed the crucial shareholder meeting to vote on the proposed merger to the first quarter of 2008, at least thrice as done since the announcement of the deal, citing various reasons.
In a letter to Dilip Shanghvi, Sun's chairman, Barrie Levitt, chairman of Taro said Sun's revised offer to raise the merger price to $10.25 per share, with a condition on elimination of a voting threshold required by Israeli law to implement the merger, was not acceptable to the Board of Directors of Taro. The $10.25 price was the same price Sun had paid in February, this year to acquire the minority position in Taro held by Brandes Investment Partners, L P, Taro's financial advisor, Merrill Lynch also advised Taro that based on most recent projections, the $10.25 price was inadequate.
Franklin Advisers and Templeton Asset Management (Templeton), which holds approximately 9 per cent of Taro's ordinary shares, had approached the Tel Aviv District Court citing the deal was undervalued. But the court did not issue an injunction to stop the merger proceedings. The case is still pending in the Court.
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Sun Pharma declined to comment on the developments.
"I regret that Sun refused our request to permit its financial advisors to meet with Taro's financial advisors to discuss Taro's value and attempt to resolve our differences," Barrie Levitt accused in his letter.
"In the last 12 months, Taro has experienced a dramatic return to profitability and has brought or is about to bring to market a significant number of new and promising products. These developments, and others, contributed to the Board's determination that the $10.25 price is inadequate," elaborated Barrie Levitt.
Taro reported net sales of approximately $313 million for the year ended December 31, 2007, with an estimated gross profit of $168 million, or 54% of sales, and net income of approximately $21.1 million, compared to an estimated loss of $141 million in 2006. Taro's losses were mounting at the time of the deal, mainly owing to efforts to reduce inventories with wholesalers, price erosion of its certain key products, delay in new product introductions, previous legal and accounting expenses and certain non-cash impairment of assets, including the Company's facility in Ireland.