Sun Pharmaceuticals raised its offer by as much as 23 per cent to buy the residual stake of Taro Pharmaceutical Industries in a bid to gain a controlling stake in the Israeli drug maker.
Sun Pharma, which owns 36 per cent of Taro, today disclosed two options to buy the remaining stake in the New York Stock Exchange listed drug maker. The revised offers come after the Israeli Supreme Court, on December 8, directed the companies to explore an out-of-court settlement within 30 days.
For the first option, Sun offered to buy shares at $9.5 each instead of the earlier $7.75 per share. Sun Pharma will have to pay $14 million more than its earlier proposal on this basis.
For the second option, Sun offered $9 per ordinary share for all shareholders other than Taro Chairman Barrie Levitt and $8.5 per ordinary share for the five million-odd shares held by the promoter group. If this is accepted, Sun’s payout will be slightly lower than the first option.
Taro, however, is yet to respond to the revised offer. “Our proposal given to Taro has been designed keeping in mind primarily the interests of minority shareholders. Taro is yet to formally respond to our proposals and neither has it made another alternative proposals,” a Sun Pharma company spokesperson said.
| STRONG MEDICINE (The Sun-Taro debacle) |
| MAY 2007: Sun Pharma announces acquisition of Taro at $7.75 a share, or for $454 million |
| MAY 2008: Taro calls off merger. Sun files case in New York District Court for not honouring commitment and alleged fraud |
| JUNE 2008: Sun announces open offer to acquire the stake of Taro’s controlling shareholders. Taro challenges its validity in Israel District court, which rules in favour of Sun |
| JULY 2008: Taro Board appeals to Supreme Court |
| DECEMBER 2008: Israeli Supreme Court suggests Sun and Taro to explore out-of-court options within a month |
| JANUARY 2009: Sun Pharma makes revised offer with two options |
Sun Pharma bought part of the 36 per cent stake, including that of Brandes Investment’s stake in the Israeli company at more than the initial offer price of $7.75 a share. Sun Pharma, in a bid to push up its stake, had earlier proposed to buy the residual stake at $10.25 per share to complete the merger, but negotiations did not happen.
Under the earlier merger agreement, Sun offered $230 million at $7.75 per share in cash (a 27 per cent premium over the $6.10 per share value on May 18, 2007). Sun also agreed to refinance $224 million of Taro’s net debt.
Sun has been able to mop up 36 per cent after the initial offer for $105 million, which included an upfront payment of $60 million to bail out Taro from immediate bankruptcy. After the infusion of funds, Taro’s fortune turned for the better and the Israeli company’s founders backtracked from the merger agreement.
Now Taro’s net debt has come down to $123 million against the earlier $224 million, raising the total enterprise value to $468 million.
Dilip Shanghvi, chairman and managing director, Sun Pharma, in his letter to Myron Strober, chairman of the audit committee of Taro, said Taro showed higher profits of $54 million and $45 million net cash from operations for January 2007 to September 2008 period in its unaudited results by cutting down R&D spending by $29 million, from the earlier 15 per cent to 10 per cent.
“Net debt at the end of September 2008 ought to be $146 million and not $123 million and there is no accompanying explanation about the risk related to ‘hedging instruments of $23 million, which probably make up this gap, in these extremely volatile credit and currency markets,” said Sanghvi.
Taro’s shares were trading 1.2 per cent higher at $8.20, on the New York Stock Exchange at 9 pm (IST).
