BlueMountain Capital Management Demands that Taro Pharmaceutical Industries
LTD Publicly Disclose the Results of the Shareholder Vote Held at Its Annual
NEW YORK, Sept. 13, 2013
NEW YORK, Sept.13, 2013 /PRNewswire/ --BlueMountain Capital Management, LLC
("BlueMountain"), one of the largest minority shareholders of Taro
Pharmaceutical Industries LTD (NYSE: TARO; "Taro" or the "Company") demands
that Taro immediately disclose the results of the shareholder vote at its
Annual General Meeting (the "General Meeting") held yesterday at 10 a.m.
Israel Time in Tel Aviv. We further demand that such disclosure, consistent
with applicable Israeli law, include the full details of the vote for each
proposal on the ballot including separate total shareholder votes and minority
shareholder votes for each relevant item. We note that under Israeli law Taro
was required to disclose this information at the meeting, but in any event the
Company's representatives indicated that the results would be disclosed to the
market yesterday. The unexplained delay in announcing the vote should be of
concern to all shareholders and, unfortunately, appears consistent with the
Company's continued disregard for its minority shareholders.
It is our belief that regarding items 7a and 7b, which are the re-election of
the Company's external directors, the required majority of minority
shareholders who vote threshold was not attained and therefore that these
external directors could not have been re-elected.
In light of the requirements to disclose this information and out of respect
for the pending Jewish holy day of Yom Kippur, Taro must disclose the voting
results to shareholders today.
Since making our initial demand to nominate two candidates to Taro's Board of
Directors (the "Board") on August 1, 2013 BlueMountain has gone to great
lengths to act in good faith in the interests of all minority shareholders and
with the Company. It should be noted that Taro made not a single effort to
constructively communicate with BlueMountain on this matter. BlueMountain has
also gone to great lengths to inform the Company of its concerns regarding the
form of the proxy process and the structure and integrity of the voting
process. Taro has dismissed these efforts.
We believe that the stock price appreciation since the termination of the
proposed acquisition by Sun and since our nomination of candidates in this
process, together with the nearly unanimous public and private support of
Taro's minority shareholders known to us and the endorsement of Institutional
Shareholder Services ("ISS") all point convincingly to the widespread belief
in the need for enhanced corporate governance at Taro. On this latter point,
this past Monday September 9, 2013 we exercised our rights under New York
State law to inspect Taro's register of shareholders. Based on the
information Taro disclosed to us, we believe there are no material minority
shareholders known to the company that were not also known to us and thus we
have a reasonable understanding of the sentiment of the minority shareholder
BlueMountain's goal is to improve Taro's governance for the benefit of all
shareholders. We are not seeking to take control of the Company. There is no
reason, in our opinion, that Taro should not have engaged minority
shareholders in a meaningful dialogue on this matter other than its pure
disdain for minority shareholder rights. For those who may have doubted this
point, the evidence should now be clear. We note that the major incentives of
Taro's controlling shareholder Sun Pharmaceutical Industries LTD ("Sun")
remain at odds with those of the minority shareholder. Sun consolidates
Taro's full results in its financial statements and thus enjoys the benefit of
Taro's performance due to the very high valuation applied to Sun's shares.
Sun does not need a higher share price for Taro in order to enjoy the full
financial benefits of its ownership. Yet, we believe that Taro should take
all reasonable steps to maximize value delivered to shareholders, including by
installing external board members that are responsive to the interests of all
shareholders. Why should Sun's shareholders' ownership of Taro be more
valuable than that of minority shareholders?
Consistent with all comments BlueMountain has made since our initial public
opposition to the proposed Sun buyout in August 2012, BlueMountain will
consider the appropriate actions to protect its rights in this matter. It
should be clear by now that we have serious reservations about the integrity
of this voting process. Consequently we have been working in parallel to this
process on contingencies should they be necessary.
Update Regarding the Events at the Annual Shareholders Meeting
For the benefit of our fellow shareholders who could not attend yesterday's
General Meeting in Tel Aviv, we wish to share some important details.
Contrary to best practices in Israel, no business executive of the Company
attended the meeting. Officially, the meeting was chaired by Adv. Yael Stein
(Taro's in-house legal counsel in Israel), and Adv. Cliff Felig (Taro's
external legal counsel) served as Secretary. When certain of the shareholders,
who participated in the General Meeting protested about the absence of any
senior executive or Board member, Taro's representatives claimed that this was
the Company's practice and is permitted under the Company's Articles, and that
the meeting is not the forum for shareholder debate. This is nonsensical since
the entire point of the meeting is a forum for shareholder debate. It also
specifically contradicts Item 11 of the proxy statement for the meeting which
was "to discuss the Company's consolidated financial statements for the year
ended March 31, 2013." We believe, once again, that the form and structure of
the actual meeting not only contradicts the relevant law and the Company's own
proxy statement, but is yet further proof of Taro's disdain for its minority
Unfortunately Taro decided to make no audio recording of the meeting. Instead,
the Secretary stated that his team would summarize the comments made by each
shareholder and include them in the minutes of the meeting. Again, some of the
shareholders protested about this, and such protest was allegedly recorded.
BlueMountain's representative at the meeting, Adv. Oren Shenkar, requested the
right to speak on the record, which was granted to him.
Adv. Oren Shenkar stated that he was our representative and that to our
knowledge we are the secondlargest minority shareholder in the Company. He
explained that over the past weeks we have raised concerns both in terms of
the Board's treatment of the minority shareholders in general, and how it
handled the process of preparing for this meeting in particular. He emphasized
that we feel the need to point out again a few of the material flaws in Taro's
conduct in connection with the General Meeting, which may have a significant
impact on its outcome.
Our representative asked for the count of the shareholders participating in
the General Meeting, and in particular the number of minority shareholders who
participated in person or by means of a written vote. While this information
must have been readily available to the Company, it refused to announce it,
and further refused to announce the results of the votes. The Company claimed
that it would do so later in the same day, so that all of the Company's
shareholders would receive the information at the same time. We are of the
opinion that under Israeli law, the Company was required to state at the
opening of the meeting the number of shares participating in the General
Meeting and the number of minority shareholders. Moreover, it is our
understanding that pursuant to Section 86 of the Israeli Companies law, the
Chairperson of the meeting was supposed to declare at the General Meeting the
outcome of the vote on each proposal. Our representative voiced his said
opinion before the Chairperson and was answered that his comment was also
Adv. Shenkar then turned to Mr. [REDACTED] of IVS Associates, Inc. ("IVS"),
who in accordance with the Company Secretary's declaration was appointed by
the Company as an independent supervisor to verify the integrity of the voting
process, and explained to him at length the Israeli legal requirements. Adv.
Shenkar specifically noted that in respect of Proposals 1, 3, 4, 5, 7a, 7b,
8a, and 8b (together most of the proposals on the General Meeting's agenda)
each shareholder participating in the General Meeting, whether in person, by
proxy or through the use of a voting card, was required to declare that he or
she has no personal interest in the outcome of the said proposals (such
shareholder is deemed a "Disinterested Shareholder"). Our representative made
reference to the specific provisions of the Israeli Companies Law (Section
267(a)(b) – with respect to Proposal 1 – Remuneration Policy; Section 276 with
respect to Proposals 3, 4, and 5 – the interested party transactions; and
Section 239(b)(i) with respect to Proposals 7a, 7b, 8a, and 8b – the
reelection and election of the external directors). Adv. Shenkar then
presented to Mr. [REDACTED] the physical voting card and the "internet voting
card" issued by the Company through Broadridge Financial Services Inc., and
asked IVS's representative if he was able to confirm who were the
Disinterested Shareholders, as both types of voting cards provided no box for
checking the existence or absence of such interest. Taro's Secretary responded
that Taro is not responsible for voting cards issued by any other person other
than the Company and that in any event the issue was moot in view of the legal
public disclosure requirements applicable to Taro since its controlling
shareholder was required to publicly disclose its holdings in the Company.
As such the Company has identified the shares voted by such shareholder.
Our representative responded by pointing out that we alerted Taro in writing
of this issue and that Taro deliberately ignored the problem, so it must have
been aware of it. Furthermore, contrary to the Secretary's explanation, there
may be shareholders who are not affiliates of the controlling shareholder, and
yet have a personal interest in the outcome of the meeting or any specific
Proposal on the agenda. This is why the definition of an Interested Party
extends merely beyond that of a controlling shareholder. In view of the
above, we are of the opinion that IVS was unable to identify who is and who is
not an Interested Shareholder, and is thus unable to reliably perform its
basic duty of ensuring a proper voting outcome.
BlueMountain's representative went on to further ask Mr. [REDACTED] of IVS
whether he could confirm that any of the voting cards where only partly filled
out by the voting shareholder (i.e., the shareholder did not indicate his or
her vote on all of the Proposals) and that in such event the vote was
automatically recorded as per the "recommendation of the board". IVS's
representative confirmed that there were such voting cards. Taro's Secretary
also confirmed that this was done and claimed that doing so was legitimate.
Adv. Oren Shenkar responded that, to his professional opinion, this practice
was completely illegal and constituted grounds for disqualifying the vote. It
should be pointed out to our fellow shareholders that prior to the General
Meeting, BlueMountain made Taro's Board aware of our analysis of the Israeli
law which prohibits such conduct, and Taro ignored such alert.
Finally, our representative expressed our opinion that Taro's Board's actions
in connection with our nominees (namely intentionally refusing, despite
multiple attempts, to obtain the required information regarding their
qualifications to serve as directors having accounting and financial
expertise) and in connection with its active support of the two incumbent
nominees, is nothing less than outrageous, and that in his opinion such
conduct constitutes a serious breach of the Board's fiduciary duties to the
Company and its minority shareholders. The Chairperson of the meeting refused
to respond to these concerns, and the Secretary commented that these
statements and the other issues raised by Adv. Oren Shenkar have been noted in
the minutes of the meeting.
In view of the importance of the outcome of this meeting and the need to
maintain its integrity, we feel the need to provide our fellow shareholders
with the exact provisions of Regulations 11 and 7(a)(8) of the Companies
Regulations (Voting in Writing and Position Statements), 5756-2005 (the
"Voting Regulations"), which state the following (emphasis added):
"11. Results of Written Voting
(a) The Board shall appoint a person on its behalf (hereinafter the –
"Supervisor") for the count of the votes of the shareholders who voted by
voting cards and via the internet.
(b) The Supervisor shall draw up a report specifying the vote of the
shareholders in reference to the existence of a link as stated in Reg.
7(a)(8), where such specification is required; if the vote shall have been
carried out over the internet, the date and time at which the vote was
received, the identification code, the control code and the number of shares
shall also be stated.
(c) The Supervisor shall declare, by signing the report, that these are the
results of the written vote, and his identity shall be authenticated on the
report by an attorney at law.
(d) The report shall be presented to the General Meeting.
(e) The proxy cards, the recordings of the votes through the internet and
the report shall be kept at the offices of the Company for 7 years from the
date of the meeting."
"7. The Form of the Voting Card
(a) A voting card shall be made up of two parts; the first part shall include
the following details, in the following order:
(8) A notation – in a vote on the appointment of an external director, as
stated in Section 239(b) of the Law, on a revision of Articles of Association
as stated in Section 262(b) of the Law, on the approval of an interested party
transaction with a controlling shareholder as stated in Section 275 of the
Law, or on the approval of a merger as stated in Section 320(c) of the Law, as
well as in a vote for adoption of a resolution according to Section 121(c), if
the Company shall have determined in its Articles of Association that such
resolutions also be adopted by way of a vote in writing – that in Part B of
the voting card, space is allocated in the second part to check the existence
or absence of a relation, as required by the said Sections, and for a
description of the nature of the relevant relation, as well as a clarification
that the vote of anyone having failed to check the box or describe the nature
of the link as aforesaid, shall not be counted;"
In the context of the Voting Regulations, having a "relation" means that the
voting shareholder has a personal interest in the outcome of the applicable
resolutions (i.e., he or she is an "Interested Shareholder").
It is our understanding that in view of the above stated provisions of the
Israeli Voting Regulations, the provisions of the Israeli Companies Law and
the declaration of the Chairperson of the General Meeting at the outset
thereof, that IVS was appointed Supervisor of the voting process, and
1.IVS's report must state the vote of each of the Shareholders, making
specific reference to whether such shareholder is a Disinterested
Shareholder or an Interested Shareholder.
2.Such statement must be in writing, signed by the Supervisor and
authenticated by an attorney-at-law.
3.The Voting Regulations require the report to be presented to the General
Meeting, which cannot be interpreted other than as requiring the Company,
through the Supervisor, to declare at (and not after) the General Meeting
the number of shares participating in the vote and the outcome of the vote
on each Proposal.
As explained above, the role of the Israeli Supervisor is much broader than
that of a typical US counterpart whose responsibility may be limited to the
mere recording of the information set forth on the face of the card. The
Israeli Supervisor has clear responsibility to ensure the integrity of the
entire voting process. While we have no reason to doubt the integrity of IVS
and its representative, we fear that IVS may not have been fully informed by
the Company of its duties and responsibilities. We also believe that the
information given to IVS to be verified was not collected properly and was not
an accurate reflection of shareholder voting, thus rendering its verification
SOURCE BlueMountain Capital Management, LLC
Contact: Doug Hesney, 646-808-3664, email@example.com
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