Sun Pharmaceutical Industries’ attempts to take over Israeli drug major Taro Pharmaceutical has received support from Proxy Governance, an investment advisory agency.
It has advised the shareholders of Taro to withhold their votes in the ensuing annual general meeting (AGM) of the company, on the eve of the new year. Sources said the suggestion from the investment advisory company was to vote against, as the proxy form had only two options, either to support or withhold.
Last week, Sun Pharma and Templeton Asset Management — the leading minority shareholder in Taro with 10 per cent stake — had also asked the Taro shareholders not to support the existing management and vote against their decisions.
The Taro management has proposed three resolutions at the AGM — to re-elect eight directors, nominate two external directors and grant special privileges for some of its current and former directors.
Sun Pharma has asked Taro shareholders to consider Proxy Governance’s independent advice and vote against the re-election of the incumbent directors and their nominees for external directors and against the board’s indemnification proposals by signing, dating and returning their proxy cards immediately.
In its report dated December 18, Proxy Governance highlighted the “weak accounting discipline and lack of internal controls” which led to Taro’s restatements of its 2003 and 2004 financial results.
The Taro board’s continuing failure to file audited financial statements should be a far broader concern for shareholders than even the initial accounting irregularities, said Proxy’s report, according to Sun Pharma in a press release.
Proxy also observed: “An unconscionably lethargic board with no visible sense of responsibility or accountability to any of the company’s shareholders except, perhaps, the founding family, which under Israeli law regularly reappoints most of them.”
Proxy also described the board’s attacks on Sun as “misdirection” and “astonishingly clumsy,” and observed that the price of Sun’s tender offer was “simply to fulfil a contractual obligation for the exercise of its option to purchase the Levitt-Moros family’s founders’ shares”.
In May 2007, Sun Pharma had agreed to buy Taro for $454 million, but Taro unilaterally terminated the agreement after a year, when its fortunes turned around to post profits. Following this, Sun had sued Taro in the US for not honouring the deal and launched a hostile open offer to acquire the remaining shares, invoking provisions of a merger agreement. Taro had questioned the validity of the special tender offer in an Israel court and the Israel Supreme Court is yet to pronounce its judgment.
