Sun Pharma, backed by minority shareholders of Israel’s Taro Pharmaceuticals, has succeeded in preventing Taro’s founder family led by Barrie Levitt from appointing independent directors of their choice to the Taro Board.
Appointing these directors was one of the three proposals put before the shareholders for approval at the annual general meeting in Israel today.
The other two proposals for which shareholder approval was sought — re-election of existing directors and indemnification proposal for some of these directors — were cleared, despite Sun’s opposition.
Sun is the largest shareholder in Taro, with 36 per cent stake. Levitt (and family) holds 12 per cent stake in the company.
The minority shareholders, which includes investment firm Templeton, hold 52 per cent stake in Taro, but have 36 per cent of voting rights due to the special capital structure of Taro. Sun termed this special structure as “skewed”. Taro capital structure also gives Levitt family a special class of non-equity shares, which gives them over 33 per cent voting rights even with a 12 per cent shareholding.
Sun Pharma has been engaged in a legal battle to acquire Taro after Levitt family refused to honour a stake sale agreement it had with Sun promoters two years ago. Sun said the AGM proved that 78 per cent of minority shareholders who exercised their voting rights were against Levitt family’s continuing control over Taro.
Dilip Shanghvi, chairman and managing director of Sun Pharma, said the Taro shareholders “have spoken, today, clearly and loudly”. “Taro equity holders with more than two-thirds of its equity want to remove the Levitts and their associates from the board. Ironically, the same directors claim to be protecting minority shareholder interests. With such unambiguous rejection by minority shareholders, the Levitts and Taro directors have lost the only crutch,” he added.
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Added a Sun Pharma spokesperson: “Shareholders voted decisively against the election of Taro’s external director nominees… a similar number voted against the board’s indemnification proposals.”
On 17 December, Sun Pharma wrote to Taro shareholders to vote against all proposals made by Taro board in the AGM.
“Taro shareholders do not have reliable and valid financial data for almost seven years, starting 2003. This failure is a result of the performance of these supposedly independent directors, as members of the Board, in discharging their fiduciary duties towards shareholders. Instead of working to correct the situation, they now want all Taro shareholders to pay for any damage claims made against them for this failure. I hope that this can be prevented. We urge you to vote at the AGM and reject all such moves of the Levitt/Moros family,” Sun had said.
The Levitt family had a signed contractual obligation to sell its shares to Sun at a pre-defined price. In line with this, Sun opted to buy those shares in June 2008. The Levitts went back on their agreement, which was challenged by Sun in Tel Aviv district court. The ruling in favour of Sun has been appealed by Taro in Israel’s Supreme Court. A decision is awaited.