Mumbai: Sun Pharmaceutical Industries Ltd said on Monday that an advisory firm, Proxy Governance Inc., has recommended to shareholders of Taro Pharmaceutical Industries Ltd that they withhold their votes for the re-election of the board of directors of the Israeli firm.
The US-based Proxy Governance advises clients on how to vote on their shareholding in a company.
The firm has also advised Taro’s shareholders to vote against the board’s two nominees for external director and some of the board’s proposals in the coming annual general meeting on 31 December, a Sun Pharma statement said.
Sun Pharma is fighting to acquire a controlling stake in Taro since the Israeli company’s board in May 2008 unilaterally terminated a merger deal that was signed with the Indian drug maker, the country’s largest by market capitalization, in 2007.
Sun Pharma holds 36% stake in Taro and has launched a tender offer to acquire rest of the share of US-listed Taro.
Last week, Sun Pharma had urged Taro shareholders to vote against the resolutions proposed by Taro board.
Proxy Governance has asked the shareholders of Taro to consider its independent advice and vote against the re-election of the incumbent directors and their nominees for external directors and against the company board’s indemnification proposals by signing, dating and returning their proxy cards immediately.
It had in its latest report on Friday highlighted that a “weak accounting discipline and lack of internal controls” led to Taro’s restatements of its 2003 and 2004 financial results, and warned that the “board’s continuing failure to file audited financial statements should be a far broader concern for shareholders than even the initial accounting irregularities”.
Proxy Governance’s report also said that “evidence of an almost unconscionably lethargic board with no visible sense of responsibility or accountability to any of the company’s shareholders except, perhaps, the founding family which under Israeli law regularly reappoints most of them”.
Observing that the board’s indemnification proposal would explicitly cover the board’s failure to provide audited financial statements and other past actions, Proxy Governance concluded “the net effect of the proposal would be...to transfer liability for their failures from the incumbent directors to the company (and thus the shareholders themselves)”.
Describing Taro board’s attacks on Sun Pharma as “misdirection” and “astonishingly clumsy”, Proxy Governance said that the price of Sun Pharma’s tender offer was “simply to fulfil a contractual obligation for the exercise of its option to purchase the Levitt-Moros family’s founders’ shares”.
The report concluded that Sun “may actually have proven itself a better steward of shareholders’ interests by repeatedly...highlighting the ongoing weaknesses of the company’s operations”.
Mint could not independently contact Proxy Governance.