Second-largest shareholder Templeton seeks management change, to vote against directors.
Sun Pharmaceutical’s attempts to acquire Taro Pharmaceuticals received a major boost with the Israeli company’s second-largest minority shareholder, Templeton Asset Management, asking the shareholders not to support the existing management, to vote against their decisions and to demand audited financial statements.
This is the first time that Templeton has openly opposed the Taro management led by Chairman Barrie Levitt, sources told Business Standard. Templeton, which holds 10 per cent in Taro, had supported Barrie Levitt and the management since a proposed merger agreement was signed with Sun Pharma in May 2007.
A week ago, Israeli online business daily Globes had said Templeton had withdrawn from Taro’s appeal against Sun filed with the Israeli Supreme Court, citing doubts about corporate governance.
The current board and management of Taro have proven unwilling or unable to run the company and hence they do not deserve the support of Taro’s shareholders, said Mark Mobius, Executive Chairman of Templeton Asset Management, in a statement.
“All shareholders should push for full transparency, re-listing of Taro’s shares on Nasdaq (an American stock exchange), and the introduction of a new, professional board that acts in the interest of all shareholders and releases audited accounts,” he said.
It is time for a replacement of the management of Taro Pharmaceuticals, which can only be introduced by a change of control, he added, indirectly referring to Sun Pharma’s takeover attempts.
Templeton said it would vote its shares against the proposals of the Taro management in the coming annual shareholder meeting on December 31. The resolutions are to re-elect eight directors, nominate two external directors and grant special privileges for some of its current and former directors.
Industry experts tracking the Sun Pharma-Taro legal battle said it was too early to ascertain the impact of Templeton’s latest stand. A decision on the validity of termination of the merger agreement by Taro is still pending before the Israel Supreme Court. Promoter Barrie Levitt and family hold 12 per cent of the shares and by Israeli law, they still command about two-thirds of voting rights on management decisions.
Sun Pharma, which has invested $105 million in Taro to acquire a 36 per cent stake, has to acquire another five million shares to gain control. Templeton’s support will be key in mustering support of the remaining 39 per cent of retail investors and other minority shareholders, they said.
Meanwhile, Sun Pharma said it would oppose the resolutions of Taro management and exhorted all shareholders to vote against the management decisions.
Taro has received notice from the SEC (Securities and Exchange Commission of US) that its shares may be de-registered entirely, making it practically impossible for shareholders to sell their shares, said Sun Pharma’s subsidiary, Alkaloida Chemical Company, in an SEC filing last week.
“We urge you to replace these directors before the SEC takes this drastic step, which could permanently impair the value of your shares,” Sun Pharma exhorted the Taro share holders on attempts to re-elect eight of Taro’s existing directors.
Taro, a major producer of over the counter pharma products in the US, is currently listed in the pink-sheet category of the New York Stock Exchange.
Sun Pharma said these directors were responsible for not publishing audited results of Taro since 2006 and this was the major reason for de-listing Taro’s shares from any regular trading market in the US.
Taro has not consulted with its minority shareholders in the selection process of two external directors and instead, it has chosen two former insiders of Taro as the new nominees, reasoned Sun Pharma on its intention to oppose the management move to induct two new external directors.
The Indian drug major said the Taro management is now asking shareholders to exempt them from any legal responsibility for their performance as directors. If the resolutions to grant special benefits are allowed, the Taro directors can get away from paying damages and absolve themselves of any legal responsibility, if Israeli courts holds them responsible for mismanagement of the company, said Sun Pharma.
In May 2007, Sun Pharma had agreed to buy Taro for $454 million, but Taro unilaterally terminated the agreement after a year, as Taro’s fortunes turned around to post profits. Following this, Sun had sued Taro in the US for not honoring the deal and launched a hostile open offer to acquire the remaining shares, invoking provisions of the merger agreement. Taro had questioned the validity of the special tender offer in an Israel court, which ruled in favour of Sun Pharma.
