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US court rules in favour of Sun Pharma

US court rules in favour of Sun Pharma

Mumbai: A US court on Wednesday rejected a petition filed by Israeli drug maker Taro Pharmaceutical Industries Ltd seeking an injunction against India’s Sun Pharmaceutical Industries Ltd’s offer in that country to buy Taro’s shares from public investors.

Taro, which is resisting a takeover by Sun Pharma after it terminated a 2007 merger agreement, had complained to the US district court in September 2009 that Sun Pharma and its subsidiary Alkaloida Chemical Co. Exclusive Group Ltd violated disclosure norms about the tender offer. It also alleged that Sun Pharma had furnished incorrect information about Taro’s revenue.

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Despite the favourable decision, a successful completion of Sun Pharma’s open offer for Taro shares will still depend on a decision by Israel’s supreme court, which had stayed the closure of the offer.

Sun Pharma and its subsidiary had in 2008 issued an open offer to public shareholders of Taro, listed in the US, to acquire its all outstanding shares. This was to exercise an option agreement between the promoters of Taro and Sun Pharma as part of the 2007 merger agreement.

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The option agreement gives Sun Pharma the right to buy the entire controlling stake held by Taro’s promoters, including its chairman Barrie Levitt and family, in the event of a failure of the merger.

Taro promoters terminated the merger pact, alleging that it undervalued the company. Sun Pharma had valued Taro at $7.75 (around Rs362 today) a share at the time of the merger deal.

“Sun is pleased, but not surprised, by this (US court) decision. The court’s complete dismissal of Taro’s complaint confirms that this most recent lawsuit was just one more unfortunate attempt by the Taro directors to divert Taro’s limited resources to assisting the Levitt family in their ongoing refusal to comply with their contractual obligations," Sun Pharma said in a statement on Thursday.

Following the Israeli supreme court order, Sun Pharma and its subsidiary had several times extended the closure date of the open offer. Though the Indian company could get some ordinary shares from the public shareholders of Taro, the exact number of shares it purchased through the offer till now is confidential.

Sun Pharma is the largest shareholder in Taro with around 36% equity. It acquired this stake in phases, during the unsuccessful $454 million merger deal as well as later.

Since Sun Pharma made the open offer, Taro has been fighting in various courts in the US and Israel against the firm’s takeover move, alleging violation of disclosure norms in Sun Pharma’s tender offer.

In its September lawsuit, Taro had alleged that Sun Pharma didn’t include some key information about the US Food and Drug Administration’s action on its US generics affiliate Caraco Pharmaceutical Laboratories Inc.’s alleged violation of norms and seizure of its products.

Taro complained to the court that the US drug regulator’s action could have a major impact on Taro if Sun Pharma takes control of the company. It also alleged that the Indian drug company did not disclose securities suits filed by Caraco shareholders, and misused Taro’s confidential information to mislead its shareholders to surrender their shares for a grossly inadequate price.

Taro had also filed a petition with the Israeli supreme court seeking an injunction on the open offer, demanding that Sun Pharma make a special tender offer. A special tender offer would require a majority approval from the Taro board as a prerequisite.

The US court has rejected Taro’s claims, based on allegations that Sun Pharma and its subsidiary Alkaloida had failed to make adequate disclosures concerning the offer.

The court also dismissed Taro’s other claims, including breach of contract and misappropriation of trade secrets. It has given the Israeli drug maker two weeks to revise its complaint.

A sector analyst with a foreign brokerage, which also tracks Taro in the US, said the US court observation may have a larger impact on the cases that Sun and Taro fight elsewhere. He spoke on condition of anonymity.

Sun pharma shares fell 0.26% to close at Rs1,739.10 apiece on Bombay Stock Exchange on Thursday; the bellwether Sensex gauge pared 0.16% to 17,909.46 points.

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