Sun Pharma’s efforts to mop up the remaining shares in Israel’s Taro Pharma appears to have entered the final leg, with the two companies announcing a merger agreement.

Sun Pharmaceutical Industries and Taro Pharmaceutical Industries said they have entered into a definitive merger agreement in which “Sun Pharma, Taro’s controlling shareholder, has agreed to acquire all of the outstanding ordinary shares of Taro for $43 per share in cash without interest.”

Sun holds 78.48 per cent in Taro, and will fork out $347.73 million (approximately ₹2,891.76 crore) for 8,086,818 outstanding Taro shares.

The transaction still has a few boxes to tick, but if it goes through, it would end years of parleys between Sun and Taro. Currently, the deal is expected to close in the first half of 2024, following which Taro will become a privately-held company and its shares will no longer be listed on the NYSE, the companies said in a joint communication.

“Pursuant to the Merger Agreement, Taro will merge with a company that is controlled by Sun Pharma upon completion of the merger, Taro will become a privately-held company and an indirect wholly-owned subsidiary of Sun Pharma,” Taro said in a filing with the US SEC. “The Merger Agreement provides each of Taro and Sun Pharma with certain termination rights under certain circumstances, in each case without requiring payment of a termination fee,” it added.

Sweetened offer

Dilip Shanghvi, Managing Director, Sun Pharma, said, “Over the years, with Sun Pharma’s strategic interventions, Taro has remained a key player in the generic dermatology market in a challenging environment. Post completion of the merger, the combined entity will firmly move forward, leveraging its global strengths and capabilities to better serve the needs of patients and healthcare professionals.” Uday Baldota, Taro Chief Executive, added the merger would enable the company to “compete effectively” in different markets. Taro clocked a turnover of ₹4,604.25 crore (FY 2022-23).

In December 2023, Sun Pharma had upped its offer to $43 per share, from its May proposal of $38. The May offer faced opposition from Taro’s largest minority shareholder. These developments harked back to events about 10 years ago, when Sun abandoned efforts to mop up Taro’s outstanding shares (2013). Sun had made a $454-million offer for Taro (2007) — a deal it sealed after the two companies fought a long cross-country battle. 

Closing conditions

The latest $43 per share purchase price represents a 48 per cent premium over the closing price of $28.97 on May 25, 2023, the last trading day before Sun Pharma first submitted its non-binding proposal to Taro, and a premium of 58 per cent to the volume-weighted average price of the shares during the 60 days prior to and including May 25, 2023, Sun said. The purchase price also represents a 13 per cent increase over the initial proposed purchase price of $38 per share as proposed on May 26, 2023, the note said.

The merger is subject to various closing conditions, the companies said, including “the approval of the merger by the affirmative vote of shareholders representing at least 75 percent of the voting power of the company’s shares present and voting in person or by proxy at a meeting of the company’s shareholders, including at least a majority of the voting power of such shares held by holders other than Sun Pharma and its affiliates or any other holders having a personal interest (under the Israeli Companies Law) in the merger and voting thereon.”

Sun Pharma has agreed to vote its shares in favour of the merger, and has indicated that it is not willing to sell its shares to a third party or support any alternative transaction to the merger, it added.

Unanimously recommended

The merger agreement was unanimously recommended by the Special Committee formed by Taro’s board of directors to consider Sun’s proposal. “Following a comprehensive evaluation of the proposal with assistance from independent financial and legal advisors, the Special Committee determined that the merger agreement and the per share merger consideration are fair and in the best interests of Taro and its minority shareholders,” the joint note said.

Following the Special Committee recommendation and the unanimous approval by Taro’s Audit Committee, the boards of Taro and Sun, respectively, unanimously approved the merger agreement, they added.

The companies said the Special Committee retained BofA Securities Inc as its financial advisor, Goldfarb Gross Seligman & Co as its Israeli counsel and Skadden, Arps, Slate, Meagher & Flom LLP as its US legal counsel to assist it in its mandate. Herzog, Fox & Neeman is acting as the Israeli legal counsel to Sun Pharma, while Davis Polk & Wardwell LLP is acting as its US legal counsel. Meitar is acting as Israeli legal counsel to Taro and Shearman & Sterling LLP is acting as US legal counsel to Taro.