Sun Pharma buys 9% more in Taro

However, the proposed merger with Sun's subsidiary may still be a long way off.

Sun Pharmaceutical Industries, India's biggest drugmaker by market value, has acquired 9.4 per cent stake in Israel's Taro Pharmaceutical Industries for $38 million, raising its total holding to 34.4 per cent.

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Alkaloida Chemical Company Exclusive Group, a unit of Sun, bought over 37.12 lakh shares from Brandes Investment Partners

Voting rights on the increased 34.4% stake should be useful when the proposal for merger of Taro is voted at the EGMs

For the merger proposal to be approved, it will have to get at least 75% of the votes cast

Alkaloida Chemical Company Exclusive Group, a unit of Sun, bought over 37.12 lakh shares from Brandes Investment Partners, an investment advisory firm, the company said in a statement.

With this purchase of an additional 9.4 per cent stake in the Israeli generics player, Sun Pharma may have shored up its voting rights in the company.

But the $313 million Taro appears to be playing hard to get, having delayed the extraordinary general meetings (EGMs) needed to approve the merger of Sun's overseas subsidiary with Taro, three times already. The merger proposal needs to be approved by shareholders before the acquisition can be completed.

Sun Pharma has paid Brandes Investments $10.25 a share. It had paid the promoters of Taro $6 a share for the 24.8 per cent it bought in May 2007, valuing the firm at $454 million.

It may be recalled that Templeton Mutual Fund had objected to the price paid by Sun, saying it was too low.

The voting rights on the increased 34.4 per cent stake should be useful when the proposal for merger of Taro with the Sun subsidiary is voted at the EGMs.

The founder-promoters of Taro hold 12.5 per cent of the voting rights for ordinary shares and, therefore, together with Sun, effectively control 47 per cent.

According to sources familiar with the development, three EGMs are required to be convened for various classes of shareholders and the merger proposal needs to be approved at all the meetings to make it valid.

The most crucial of the meetings is the one for ordinary shareholders because it is in this class of shares that Sun and the promoters command the lowest percentage of just 47 per cent of voting rights.

For the merger proposal to be approved, it will have to get at least 75 per cent of the votes cast at the meeting.

The other two meetings are for founder-shareholders, who are backing Sun and for a combined class of shareholders, for which Sun and the promoters together have voting rights of 64 per cent.

Taro postponed the EGMs scheduled on July 23 and September 25, 2007, on the excuse that the company was yet to publish its audited financial results that would give shareholders a better idea of the financials before the EGMs.

Taro has not yet announced the date for the EGM, though it had said that it would conduct it in the first quarter of 2008.

Taro's accounts for the years ended December 2006 and December 2007 are yet to be audited, though the pharma player announced unaudited numbers for the year ended December 2007 on February 19, 2008.

Taro has a strong franchise in dermatology and tropical products, in addition to product baskets in cardio-vascular, neuro-psychiatric and anti-inflammatory therapeutic categories. It has established manufacturing and product subsidiaries across the US, Israel, Canada and North America.

The shares of Sun Pharmaceutical lost 4.65 per cent (or Rs 52.15) to close at Rs 1,068.25 on the Bombay Stock Exchange on Wednesday. The announcement of the acquisition came after the close of trading on Tuesday.