In a letter to shareholders, Taro Pharmaceutical Industries Ltd. (Pink Sheets: TAROF.PK) chairman Barrie Levitt continued to explain the board's decision to break off a merger agreement with India's Sun Pharmaceutical Industries Ltd., and hinted that investors may receive a new Sun offer.
Levitt wrote, "However, in the meantime, should Sun commence a tender offer for Taro shares, our Board strongly recommends that you not take any hasty action with respect to your shares, but instead await receipt of important information from the Company concerning the Board's evaluation of any such offer and other matters required to be disclosed under applicable law."
Essentially, Levitt reiterated Taro's previous contention that a recent improvement in its operating results should have raised the value of a purchased offer.
The agreement provided for Sun to buy Taro for $7.75 per share, and allowed either party to terminate after December 31, 2007. Levitt explained that, "There was significant shareholder opposition to the merger, and the shareholders meeting to vote on the merger was canceled with Sun's approval. While Sun recently offered to raise the merger price to $10.25 per share, our Board of Directors unanimously determined that this price was financially inadequate."
While Taro still has not issued audited financial statement for 2006 or 2007, unaudited results reported by the company showed 2007 net profit of $2.1 million on revenue of $313 million, compared with an estimated loss of approximately $141 million in 2006. For the first quarter of 2008, Taro announced net profit of 7.5 million on revenue of approximately $78 million.
Levitt wrote that Taro's board "noted that Sun’s proposed $10.25 increased merger price was the same price Sun had paid in February of this year to acquire the minority position in Taro held by Brandes Investment Partners, L.P. ("Brandes"), a large shareholder that had opposed Sun’s original $7.75 merger proposal. Significantly, when Sun purchased the Brandes shares, Taro had not yet released financial results for the year-ended December 31, 2007 or the first quarter of 2008. Thus, the extent of our turnaround was unknown to the public. In addition, Sun's proposed increased price reflected no control premium; our Board felt that it was unfair for Sun to seek to acquire the entire equity interest in the Company at the same price it had paid for Brandes' minority interest."
Levitt blamed Sun for preventing a sale of Taro's Irish subsidiary, which he claimed is costing Taro approximately $800,000 per month to maintain. Taro noted that the sale "would have substantially enhanced our profitability and cash resources. Nevertheless, Sun, whose consent to the sale was required under the terms of the merger agreement, repeatedly refused to agree to the transaction.
"Our Board continues to believe that the sale of our Irish operations is in the best interest of the company and will substantially improve our profitability and cash position. Yet, while the merger agreement has been terminated, Sun has continued its opposition to the sale, and has recently threatened to place advertisements in the Irish press opposing it. To protect the interests of Taro and our shareholders, on June 15, we commenced litigation in Israel to stop Sun from engaging in practices that we deemed detrimental to our ability to maximize the value of the Irish operations in a sale. At the same time, we invited Sun to submit an offer to purchase the Irish operations if it wishes to do so. We will give any proposal submitted by Sun the same serious consideration that all bona fide offers receive."
Published by Globes [online], Israel business news - www.globes-online.com - on June 19, 2008
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