The Hindu Business Line : Sun Pharma-Taro merger deal off

Mumbai, May 28 Sun Pharmaceuticals’ $454-million proposal to acquire Israeli drug-maker Taro has come unstuck, a year after the deal had been formalised.

And price, it seems, is the deal-breaker, in what was touted to be the second largest overseas acquisition in pharmaceutical circles.

In an announcement early on Wednesday, Taro said that its board of directors had unanimously voted to terminate the May 18, 2007 merger agreement.

The board was of the opinion that the deal was not in the best interests of the company, a Taro note said.

The Taro board said that Sun Pharma’s offer was “financially inadequate”, based on the advice received from Taro’s financial advisor, Merrill Lynch.

Trouble from the start

But, trouble had loomed over the deal right from the start, with minority shareholders, Templeton and Brandes, being unhappy with the price ($ 7.75 per share) that Sun Pharma was offering for the acquisition.

And though Sun Pharma’s Managing Director, Mr Dilip S. Shanghvi, had repeatedly expressed confidence on closing the deal, the latest projection of completing the deal by the first quarter of this fiscal failed to happen. Taro’s shareholder meeting, that was to take-up the Sun Pharma proposal, had been rescheduled twice over.

In fact, Taro has been unable to file audited financial statements for the year ended December 2006 due to questions on estimates for accruals for sales returns and chargebacks among others in the previous year. As a result, the audited results for 2007 as well had not been filed.

Raises offer

As further delay crept in, Sun Pharma offered to raise the merger price to $10.25 per share. But this was on the condition that that a voting threshold required by Israeli law to implement the merger would be eliminated, the Taro note explained.

In fact, $10.25 was the price that Sun Pharma had paid in February this year to acquire the minority position in Taro held by Brandes Investment Partners.

Taro pointed out that the merger agreement had become “stale” and did not reflect the dramatic operational and financial turnaround that Taro had achieved since last year, besides the future value that the company expected to get from its reworked business model and product pipeline.

Sun Pharma holds 34.4 per cent equity in Taro, and has till date invested about $ 100 million in it.

In a letter to Sun Pharma’s Mr Shanghvi, Taro’s Chairman Mr Barrie Levitt, said that the company’s board “would be prepared to use our best efforts to attempt to arrange for the purchase of your shares by a third party at the same $10.25 per share price as your revised merger proposal.”

A Sun Pharma spokesperson told Business Line that the company was evaluating all options.

Mr Ranjit Kapadia, Research-head of PCG-Prabhudas Lilladher said that Sun Pharma could be saddled with its shares in Taro, if it does not get purchased at a good price by a third party.

But with the uncertainity out of the way, Sun Pharma shares were up over six per cent, at Rs 1,466, on the BSE.