Mumbai: Two firms that own approximately 9% of Israel’s Taro Pharmaceutical Industries Ltd are opposing Sun Pharmaceutical Industries Ltd’s proposed acquisition of Taro and are seeking an open bidding process to maximize value for minority shareholders.
Franklin Advisers Inc. and Templeton Asset Management Ltd are part of Franklin Templeton, one of the largest mutual fund companies in the world. They are opposed to Taro being acquired by Sun Pharma for $6 (Rs246) per share as opposed to $7.75 a share proposed on 20 May.
The revised price is a discount of more than 22% to the current trading price of $7.34 per share and marginally lower than the trading price of $6.1 on the day the deal was announced. The initial price agreed to by Sun was a premium of 27% more than the closing price on 18 May.
Franklin Templeton said it will press forward in a case filed against Taro in the Tel Aviv district court in Israel.
“We believe that we have a very strong case and we believe that this transaction is void because it involves a very deep conflict of interests of the controlling shareholders who have a personal interest in the deal and that it was not approved according to appropriate corporate governance,” said Mark Mobius, president, Templeton Emerging Markets Fund Inc., in an email response to Mint.
Taro had said in an earlier release that since the court has not decided to issue any temporary injunction preventing the takeover, the acquisition will continue as planned.
Sun Pharma first proposed to acquire Taro on 20 May for $454 million, including $224 million in debt. At that time, Taro said it “believes that the proceedings initiated by Franklin Advisers and Templeton are without merit and are detrimental to the best interests of shareholders and the company.”
A Sun Pharma spokesperson said, “We believe that the case has no merit,” noting that “the case is sub judice, hence it is appropriate for us to wait for the outcome.”
The legal battle between the shareholders and Taro started in May when Franklin Advisers and Templeton Asset Management filed a motion in the court alleging that the affairs of Taro are being conducted in a manner detrimental to minority shareholders. “The action followed a long period in which the company’s affairs were conducted in a scandalous and oppressive manner,” claimed Carlos von Hardenberg, a senior vice-president at Templeton.
Templeton alleged financial irregularities, misleading reports made by the company, its directors and controlling shareholders, which also led to nine proposed class action suits against the company. “In fact, as Taro admitted in the court proceedings, Sun has been offered a private allotment of shares, which diluted the minority shareholders,” alleged Mobius.
Sun was offered 7.5 million shares for a price of $6 whereas Sun itself admits that it believes that the “fair” price is $7.75 per share. “This issuance of shares is done above and beyond what Taro requires for confronting its debt obligations,” says Hardenberg. “The issuance of additional stock should be viewed as a first step in a two-step manoeuvre to squeeze the minority shareholders out of the picture. In addition to this oppressive scheme, Sun was also given an option to further dilute the shareholders by purchasing 7.5 million shares for the price of $6 over a three-year period. This dilution coerces the minority shareholders, who are asked to agree to the merger with Sun because if they do not give into Sun’s offer for merger, they may find themselves even further diluted and oppressed.”