Mumbai: Sun Pharmaceutical Industries Ltd has decided to force controlling shareholders of Taro Pharmaceuticals Industries Ltd to sell all their shares, after a merger agreement between the two collapsed last month with the Israeli drug maker terminating the $454 million (Rs1,938.58 crore) takeover deal.
Sun said on Thursday that it is exercising an option under a May 2007 deal it signed with Taro according to which Taro’s controlling shareholders, led by its chairman Barrie Levitt, agreed to sell all their shares to the Indian company should the deal fail.
The May 2007 deal pulled Taro out of bankruptcy even as it gave Sun more marketing access to the US market.
Under the May agreement, Sun has the right to buy shares owned or controlled by Levit and other controlling shareholders at $7.75 per share and offer to buy the remaining stock at the same price, Taro had said in an earlier Business Wire release.
In May 2007, Sun had offered to buy Taro for $230 million in cash and an additional $224 million to refinance debt.
Anticipating Sun’s open offer plan, Levitt last week asked Taro shareholders not to take any action in the event of such an offer “but instead await receipt of important information from the company concerning the board’s evaluation of any such offer”.
Sun, India’s largest pharma company by market value, on Thursday also moved the US Supreme Court against Taro and its directors, seeking an order to ensure that the controlling shareholders honour their promises under the agreement. It has also sought an order declaring that the merger agreement was not properly terminated.
Taro executives could not be reached on Thursday evening for comment on Sun Pharma’s open offer proposal.
As reported by Mint on 30 May quoting people close to the development, Sun Pharma was exploring the possibility of an open offer to buy out existing Taro shareholders by taking advantage of its more than one-third equity stake in the Israeli drug maker.
Sun Pharma is the biggest stakeholder in Taro with a 34.4% stake.
But Taro’s chairman last month wrote to Sun saying it had to terminate the merger deal as the $7.75 offer price was inadequate.
“...Now it is time for Dr. Levitt and his family to do what is required of them under the option agreement. We will do everything required to preserve our rights,” Sun Pharma chairman Dilip Shanghvi said in a statement.
On Thursday, Sun’s share price rose 3.03% to Rs1,342 on the Bombay Stock Exchange, while the Sensex went up 1.42% to 14,421.82.
“The buyer, with more than 33% stake in the target company, should be able to make an open offer, which would lead to a merger...,” Alasdair Nisbet, managing director, Lazard and Co. Ltd, had said, responding to a Mint query last month.
“While we remain confident of the deal going through, we believe it is going to take longer than we had expected,” analysts Pinakin Parekh and Prit Pal of JPMorgan Chase and Co. said in a note.
Bloomberg’s Saikat Chatterjee contributed to this story.