Sun Pharma Buys Additional Stake In Taro, Will Tender Offer Follow?
This article was originally published in PharmAsia News
Executive Summary
NEW DELHI - Alkaloida Chemical, an indirect subsidiary of Mumbai-based Sun Pharmaceutical, has bought a 9.4 percent stake in Taro Pharmaceutical from Brandes Investment Partners, taking Sun's holdings of the Israeli generic drug maker to 34.4 percent as it attempts to complete an acquisition that has stalled over the offer price
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NEW DELHI - Alkaloida Chemical, an indirect subsidiary of Mumbai-based Sun Pharmaceutical, has bought a 9.4 percent stake in Taro Pharmaceutical from Brandes Investment Partners, taking Sun's holdings of the Israeli generic drug maker to 34.4 percent as it attempts to complete an acquisition that has stalled over the offer price. In a Feb. 19 U.S. Securities and Exchange Commission filing, Alkaloida said it paid Brandes $10.25 a share for approximately 3.7 million shares of Taro, a premium to the offer price made in May 2007 (Also see "Sun Pharmaceutical Moves To Buy Taro In $450 Million Deal" - Scrip, 22 May, 2007.). Sun told PharmAsia News that the premium paid to Brandes does not mean that it will raise its offer price, saying instead that it was a one-off deal. Sun signed a definitive agreement to pay $454 million, or $7.75 a share in cash, for Taro in May 2007, but the offer was challenged by Franklin Advisers and Templeton Asset Management, which hold roughly nine percent of the Haifa, Israel-based firm. Sun Chairman Dilip Shanghvi said recently that he hoped the Taro board would approve the sale at an upcoming meeting (Also see "Sun Pharmaceutical To Start Generic Protonix Sales in U.S." - Scrip, 31 Jan, 2008.). The Taro Website, as of Feb. 20, did not list any upcoming events, and Sun told PharmAsia News it has not been notified of any date for a Taro board meeting. Shanghvi has said that Sun could pursue a tender offer if Taro shareholders do not approve the deal. The original agreement valued Taro at $230 million, while Sun agreed to refinance approximately $224 million of Taro's net debt. "If the Taro approval does not go through, we have the option to make a tender offer. But we're not sure if we'd want to. We also have an option to acquire the promoter's holding, which would take us up to 40 percent," Shanghvi said Jan. 31 during Sun's third quarter earnings call. The company reported net profit for the third quarter ended December rose 60 percent to 3.18 billion rupees ($80 million) led by an "unusual" gain from sales of the generic version of Novartis' epilepsy treatment Trileptal (oxcarbazepine) (PharmAsia News, Oct. 15, 2007). Before the purchase from Brandes, Sun owned 24.9 percent of Taro. The promoters hold 12.5 percent of the company. If Taro rejects Sun's offer and Sun decides to buy the promoters' stake, Sun would be shy of a majority holding at 47 percent of the ordinary shares. During the quarterly call, Shanghvi also noted that Sun had "close to $500 million" in cash that could be used for acquisitions, but said the company currently had no targets outside of Taro. In May 2007, Sun had provided Taro with a cash infusion of $45 million by buying 7.5 million shares. Taro, which has a strong lineup of dermatology and topical products in addition to cardiovascular, neuropsychiatric and anti-inflammatory drugs, said at the time that it was attempting to "address serious liquidity issues in a manner that would permit it to remain in existence and continue to grow." Sun's strong earnings, cash flow and a January announcement it would begin generic sales in the U.S. of Wyeth's proton pump inhibitor Protonix (pantoprazole) led Mumbai-based brokerage Kotak Institutional Equities to upgrade its price target for Sun to 1,500 rupees ($37.39) a share from 1,270 rupees ($31.66) in a note to clients Feb. 6. The company's shares closed at 1,068.25 rupees ($26.63) on the Mumbai stock exchange Feb. 20. Kotak pharma analyst Prashant Vaishampayan said in an email after the third quarter results that he expected Sun would pursue a tender if the merger deal does not win shareholder approval. "At this point of time, shareholders of Taro have to decide and Sun can make the next move only when they know what Taro shareholders want," Vaishampayan told PharmAsia News in a Jan. 31 email. "I think they will not give up without a fight in case the shareholders do not accept the merger proposal. They will take the tender route if required." - Ed Lane ([email protected]) |