Investors in Taro Pharmaceutical Industries Taro Pharmaceutical Industries Ltd. (Pink Sheets: TAROF.PK) have been anxiously waiting to see who will eventually buy control of the company. Will it be Ofer Brothers' Ofer Hi-Tech fund, or maybe the drug company Perrigo which acquired Agis? Could it be Israel Cold Storage or Yishay Davidi's First Israel Mezzanine Investors Fund (FIMI)? Taro has not officially mentioned the identity of the buyers, but it has stated that it is examining business alternatives and apparently the rule of "there's no smoke without fire" applies. The largest shareholder, chairman Dr. Barrie Levitt is due to make a decision soon, as offers were already submitted some time ago to the company.
Taro had intended to inform its shareholders as to who had been decided upon during the "auction" run by the company's financial advisor Blackstone Group. However, Franklin Templeton wishes to halt the process. The large institutional investor has been waging war since October 2006 against Taro's management, including letters and veiled threats. All of these expressed the marked dissatisfaction of the fund's managers with the company's management, and mainly Barrie Levitt.
Franklin Templeton (which holds its stake through Templeton Asset Management and Franklin Advisors) reduced its holdings in recent months from 17% to 9.5%, in exchange for $34 million.
Today, the letters and the threats made it to the Tel Aviv District Court Aviv in the form of a lawsuit filed against Taro, Levitt, Dr. Daniel Moros (deputy chairman), Tal Levitt (daughter of Dr. Levitt, director and VP Taro US), Aaron Levitt (president until 2004), and holding companies owned by the Levitt and Moros families. The two families founded Taro in the 1950's and together hold 45.6% of the voting rights.
Franklin is asking the court to rule that Taro is being managed in a manner which is prejudicing the rights of minority shareholders - itself included - and to direct the company to provide information, documents and data to shareholders, including the books of the company, reports of external examiners on its past conduct, and agreements with Blackstone, and to direct Taro to provide details on the offers which it received for the company. Franklin's lawyers are also requesting that the court add a clause to the company's articles of incorporation that will require future court approval of any sale or allotment of controlling shares, and that such a sale must include a full tag along option for the minority shareholders. Franklin is also asking for a special permanent manager "to verify that the company's affairs cease to be managed in a discriminatory manner." Taro has so far declined to comment on the matter.
The way Taro has been run over the last year has angered Franklin and other investors, and this is expressed in the share price - $10.6, which reflects a market cap of $180 million. Slightly under a year ago, in June 2006, Taro announced that it would have to restate its results for 2003 and 2004 and it also failed to submit its later reports on time. Only after a year, in March 2007, was the full 2005 report filed. The report carried a going concern qualification.
"The delay and the concealment for a year is a scandal in itself, the likes of which we have never seen," says the lawsuit. "The company is being run in a defective and scandalous manner which could lead to insolvency, in a manner which is prejudicing the rights of minority shareholders, including shamelessly concealing the secrets of the company for over a year, and they intend to continue to conceal and deny. Taro in a chronic and defunct state, in which the company, led by its controlling shareholders, actively prevents access by shareholders to vital information which would enable them to supervise the affairs of the company and make informed decisions about their property… The company management's efforts to "save" from drowning the company that it drowned are in fact attempts by the controlling shareholders to "save" their personal capital at the expense that of the minority shareholders. Public shareholders are expected to sit quietly and watch the sinking ship, while they are deprived of their rights."
Published by Globes [online], Israel business news - www.globes.co.il - on May 10, 2007
© Copyright of Globes Publisher Itonut (1983) Ltd. 2007