Company Watch

Taro calls off merger with Sun Pharma

Our News Bureau - Mumbai

Israel's Taro Pharmaceuticals recently terminated its merger agreement with Sun Pharma. It was agreed last year that Sun Pharma, which has a 34.4 percent stake in Taro, would be acquiring Taro in an all-cash deal worth $454 million (Rs 1,789 crore), including an equity component of approximately $230 million at $7.75 per share in cash. However, in turn of events, Taro announced that its board of directors unanimously voted to terminate the merger agreement with Aditya Acquisition Company, a subsidiary of Sun Pharma, which it had entered last May. The agreement provided for the acquisition of Taro by Sun for $7.75 per share and allowed either party to terminate the agreement after December 31, 2007. Sun Pharma had offered to raise the merger price to $10.25 per share, but Taro wanted more and this is considered to be the reason for the fallout.

So far, Sun has made equity investments in Taro of $59 million, including $41 million to help the Israeli company avoid an impending payment default and another $18 million through the exercise of warrants.

Taro postponed the crucial shareholder meeting to vote on the proposed merger at least three times and eventually to the first quarter of 2008, citing various reasons. In a letter to Dilip Shanghvi, Chairman, Sun Pharmaceuticals, Barrie Levitt, Chairman, Taro, said that Sun's revised offer to raise the merger price to $10.25 per share, subject to eliminating a voting threshold required by Israeli law to implement the merger, was not acceptable to the board.

"The board determined that the merger agreement had become stale and does not reflect the dramatic operational and financial turnaround that the company has achieved since last year, the future value that the company expects to achieve from the changes made in its business model and the value in its new product pipeline," Taro explained in a detailed press statement. Pointing out that permitting the agreement to remain in force is no longer in the best interest of the company, Taro also said that certain operational constraints in the merger agreement were also interfering with its ability to manage its business for the benefit of all its stakeholders. Franklin Advisers and Templeton Asset Management (Templeton), which holds approximately nine percent of Taro's ordinary shares, had approached the Tel Aviv District Court on grounds that the deal was undervalued. But the court did not issue an injunction to stop the merger proceedings. The case is pending. Sun Pharma declined to comment on the developments.