Mumbai/New Delhi: Indian drug maker Sun Pharmaceutical Industries Ltd has violated an agreement by making a settlement proposal public, a top executive of Taro Pharmaceutical Industries Ltd has claimed.
Israeli firm Taro is the target of a takeover by the Indian pharma company.
Taro’s managing director Barrie Levitt wrote on 4 January to Sun Pharma’s chairman and managing director Dilip Shangvi that the Indian firm has violated an express agreement to keep all settlement discussions and proposals confidential.
False charges? A file photo of Sun Pharma chairman and MD Dilip Shanghvi. The firm claimed that there was no express agreement between the companies on any of the settlement discussions. Santosh Verma / Bloomberg
“Negotiation by press release hardly seems like a formula for success,” Levitt wrote in a letter.
He also dismissed two options offered by Sun Pharma, saying Taro’s board did not view them as “constructive or even in the ballpark”.
The Israeli firm, however, is yet to officially respond to the two proposals put forth by Sun Pharma on 22 December as part of an out-of-court settlement suggested by the Israeli Supreme Court.
Mint reported on Monday that Sun Pharma, which has about 36% stake in Taro, has proposed to revise the offer price for the remaining shares to $9.50 each (Rs462.65) if Taro rolls back its decision to terminate the merger agreement signed in July 2007.
Another option the Indian firm has put forward suggests a price revision in its tender offer for all the shares to $9 each if Taro withdraws the injunction to the closure of the offer.
Sun Pharma’s shares closed 0.2% higher at Rs1,041.20 on the Bombay Stock Exchange on Tuesday, while Taro’s stock closed 1.23% higher at $8.2 on over the counter trade in the US on Monday.
However, Levitt rejected both offers in his letter, saying: “Both Sun’s merger proposal, as well as its tender offer alternative, involved prices that represented a significant reduction from the $10.25 price that Sun paid for Brandes’ 8% minority interest in Taro in February 2008, and which you proposed to pay in your revised merger proposal last May.” After signing a merger agreement with Taro in 2007, Sun had acquired its stake from the minority shareholders of Taro, including an 8% stake from Brandes Investment Partners Lp.
A Sun Pharma spokesperson said on Tuesday: “There were no express agreement between the companies on any of the settlement discussions, so Levitt’s claim of Sun Pharma violating the same is a farce.”
In June 2008, Taro had terminated the merger agreement following recommendations from its financial adviser Merrill Lynch and Co., which termed the proposal financially inadequate.
Sun Pharma then launched a tender offer in the US to buy all remaining shares based on an option agreement between the Taro promoters and itself. This option agreement, Sun said, enables it to acquire all shares held by the promoters of Taro if the merger is unsuccessful.
In his letter, Levitt also said that his firm would respond to Sun’s “misleading claims” that Taro’s improved results are exaggerated.
As part of a counter-proposal, Taro is proposing to hold a shareholder referendum. While conceding that a merger represented the most desirable way for both firms, Levitt wrote such a move would depend on Sun Pharma offering a price acceptable to Taro’s shareholders. “If the Sun offer received sufficient favourable votes to satisfy the requirements for approval of a merger under Israeli law, Taro would immediately enter into a merger agreement with Sun at the price specified by Sun in the shareholder referendum,” he wrote.
“If, on the other hand, Taro shareholders rejected Sun’s merger price, Sun would agree to a full standstill arrangement (no share purchases, proxy fights, or other shareholder proposals) for a period of three years.”
Sun Pharma is preparing a response to Levitt’s letter, a person close to the development said. “It is unlikely that the Indian company will further revise the price as cited by Levitt in his letter with reference to Brande’s share purchase, as the market valuation has come down since then,” he said on condition of anonymity because Sun Pharma’s official response to Levitt’s letter has not been made public yet.
Also, a direct buy from a stakeholder differs from a tender offer in that the shareholder has the option to not sell. “Sun Pharma’s most important contention to Taro’s counter-offer now is going to be on the shareholder referendum, which is a ploy by Taro board to skip the option agreement that mandates Levitt family and their associates to sell the shares to the Indian company,” the same person said.
Sangeeta Bharti, an advocate with Delhi-based law firm Jurisperitus, said: “In case of an acquisition, two companies can sign an agreement under which the acquiring firm agrees to not divulge certain information. Taro under any agreement may have told Sun what is to be protected. Anything not covered under that cannot be kept confidential.”