ImageThe Indian company has offered to revise the offer price to $9 per share if Taro withdraws an injunction on Sun’s open offer for the Israeli firm’s shares in the US

India’s largest drug maker by market value, Sun Pharmaceutical Industries Ltd has offered to raise its purchase price for Taro Pharmaceutical Industries Ltd, the Israeli drug maker that’s resisting a take-over by the Indian firm after initially agreeing to a merger in July 2007.

The price revision has been put forth in two proposals Sun Pharma submitted to Taro’s management as part of an out-of-court negotiation to resolve the seven month-long takeover tussle between the two firms at courts in Israel and the US. Copies of the proposals were reviewed by Mint.

In its first proposal, Sun said it would increase its offer price to $9.50 (Rs460) per share from the earlier $7.75, if Taro withdraws its purported termination of the merger agreement.

Else, as a second proposal, the Indian company has offered to revise the offer price to $9 per share if Taro withdraws an injunction on Sun’s open offer for the Israeli firm’s shares in the US.

Taro shares ended at $8.10 in over the counter trading in the US on 2 January. On Monday, Sun Pharma shares closed nearly flat at Rs1,043.85 on the Bombay Stock Exchange.

Sun Pharma informed the stock exchanges on Monday that it had put these proposals to Taro on 22 December as recommended by the Israeli Supreme Court, which is hearing an appeal filed by Taro against a lower court’s decision to allow Sun to go ahead with the tender offer in the US. The court had asked the firms to reach a settlement in 30 days.
Taro had approached the lower court seeking an order to ask Sun to launch a special tender offer with some modifications.

“Depending on which option is considered (by Taro), Sun Pharma is offering additional 16-23% for minority shareholders,” Sun spokesman Uday Baldota said. Taro’s Israel office could not be reached on Monday evening because of time differences.

In a letter last week, Sun Pharma chairman Dilip Shangvi reminded Taro’s directors about the settlement options. Shangvi had also accused the Taro management of exaggerating the company’s performance by cutting key research and development projects to claim an “impressive turnaround”.
“Our proposals given to Taro have been designed keeping in mind primarily the interests of minority shareholders. It has been 15 days, but Taro is yet to formally respond to our proposals,” Baldota wrote in an email on Monday. “Neither has it made any other alternative proposals. With this, it is reasonably clear that under the pretext of protecting minority shareholders interest, Taro and its outside directors are actually fighting for the benefit of Levitts (the promoters).”

Sun Pharma and its US subsidiary had in 2007 signed a $454 million merger deal with Taro’s controlling stakeholders—the Levitt family and its associates. But the deal did not come through as Taro’s board unilaterally terminated the agreement after a year alleging that the deal significantly lowered the firm’s value.

Following this, Sun decided to execute an option agreement signed between the company and Taro promoters that gave the Indian firm rights to purchase the entire stake of the Levitt family and its associates in Taro. As part of exercising the option agreement, Sun Pharma launched a tender offer in July 2008 to Taro shareholders to purchase all the ordinary shares, including the promoters’ controlling stake.

Sun Pharma currently holds around 36% stake in the Israel firm.
The Indian company, which has already invested some $105 million in Taro for this holding, expects its total stake in the company to go up to 54% if the tender offer is closed according to schedule. “The tender offer, as it stands now, ends on 9 January, and needs to be extended if the injunction is not lifted,” said Baldota.
It could not be ascertained immediately if Sun’s revised offer is feasible in a market where valuations are low. “The suggested revisions have been done keeping in mind the interests of the minority shareholders, despite the reduction in valuation of all generic pharma companies in the last one year,” Baldota added.

According to sector analysts, even with additional investment Sun Pharma would benefit from the deal if Taro accepts any of the proposals. “My view is that Sun has a good chance of getting the deal through,” said Prashant Nair of Citigroup Investment Research.