Sun Pharma Ends Effort to Buy Rest of Taro Pharmaceutical

Sun Pharmaceutical Industries Ltd. ended an effort to buy the remaining stock of Taro Pharmaceutical Industries Ltd. for about $685 million after Taro shareholders held out for a higher price.

Terminating the $39.50-a-share merger agreement “was in the best interest of the respective companies and shareholders,” Sun and Taro said today in a statement. The board of Yakum, Israel-based Taro agreed to the deal in August after rejecting a $24.50-a-share proposal in July. Sun, based in Mumbai, already owns 61.1 percent of Taro.

The decision ends, for now at least, a six-year effort by Sun, India’s largest drugmaker by market value, to acquire Taro. When Sun first bid for the company in 2007, Taro was losing money. The company has since become profitable, and even before it agreed in August for Sun to buy the remaining shares, Taro’s stock price surpassed the offer price.

“As earnings keep coming in stronger and stronger for Taro, there was obviously a lot of disconnect with the price Sun was willing to offer,” said Nitin Agarwal, an analyst at IDFC Securities Ltd. in Mumbai. “It was fairly unlikely that the deal would have gone through.”

Taro rose 2.8 percent to $51.96 at the close in New York, its highest price since April 2004. The shares have increased 64 percent in the past 12 months. William Coote, a spokesman for Taro, declined to comment beyond the release.

“We concluded that Taro shareholders wouldn’t agree to the deal unless the offer price was increased substantially,” said Sun Managing Director Dilip Shanghvi said on the company’s earnings conference call today.

Taro Sales

Taro, which sells 84 percent of its products in the U.S., including treatments for head lice and skin discoloration, said in November that second-quarter sales rose 16 percent to $161 million.

“Sun essentially was trying to steal the company,” said William C. Martin, chief investment officer of Raging Capital Management in Rocky Hill, New Jersey, which oversees about $320 million in assets including Taro shares. “They were trying to buy it well below what it was worth.”

Sun offered in May 2007 to buy Taro for $454 million, which included $224 million for refinancing debt. The takeover attempt was rejected by Taro’s board. The terms of the agreement included a clause that gave Sun the option of buying former Chairman Barrie Levitt and his associates’ stake in the company.

Court Ruling

Israel’s highest court ruled in September 2010 that Sun could proceed with its buyout offer for Taro, allowing Sun to enforce the 2007 agreement. Two weeks later, Sun acquired a majority stake in Taro, giving the company control over Taro’s factories in Israel and Canada and adding medicines for heart disease, skin ailments and pain to its offerings.

A year later, Sun made a non-binding offer of $24.50 a share, which Taro rejected as “inadequate.” Sun boosted that bid to $39.50 cash for each share of Taro it didn’t already own, gaining the support of Taro’s board.

Taro in November postponed shareholder meetings scheduled for Dec. 6 to consider the takeover offer.