Taro Pharma rejects Sun Pharma’s offer, proposes a shareholder referendum on the offer price

Taro Pharmaceutical Industries has rejected Sun Pharmaceutical’s revised offer price (disclosed yesterday by Sun Pharma) as too low. It has said that Sun Pharma rejected its offer of a face to face meeting, made on December 30, and instead chose to go public with the offers, which were to be confidential. Apparently, Sun Pharma refused to meet unless Taro made a counter offer first.

There is a lot said in its letter which ends by saying its board has authorised the chairman to make a counter offer. Both companies are keen on a merger as the mode of acquisition. The price is what is in dispute. Sun Pharma had earlier offered $7.75 a share which has been revised to $9.5 in one proposal and $9 in another (to all non-Levitt shareholders). 

Taro’s chairman and promoter, Barrie Levitt has asked Sun Pharma to participate in a shareholder referendum. Shareholders would vote on a merger proposal, at a price offered by Sun Pharma. It can explain directly to Taro’s shareholders why its proposal offered the best option and if Taro’s board disagreed, it would inform shareholders why they thought so. Templeton (which had initially raised a red flag over the price and now, along with Taro, is fighting the legal battle in Israel’s Supreme Court) could also voice its opinion in such a referendum.

Taro says that if Sun receives enough votes for approving a merger under Israeli law Taro would immediately enter into a merger agreement. If it is rejected, Sun Pharma will have to cease all activity (standstill agreement) to further this transaction for three years. In that time, Taro has sought enough time to achieve the value its Board believes is inherent in the company. If it accepts Taro’s proposal, Sun Pharma will also cease litigation in the US and Israel.
Will Sun accept Taro’s proposal?

If Sun is not allowed to participate in the referendum (being an interested party) then it will have an uphill task. How many votes it will need to garner is also an issue, it will be easier if it’s 51% but not if its 75%. Israel’s Supreme Court, had on December 8, 2008, given both companies 30 days within which to come back to it with a solution. Otherwise, it will give a ruling on the issue.

That ruling will be critical as it comes from the highest court of the land. It will become very difficult for either company to wriggle out once the ruling comes out, and a settlement will perhaps be a more palatable solution. But the 30-day period is about to end, and with the correspondence between the two parties not indicating a patch-up, whether they will be able to quickly settle is the question.

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