Taro / Sun dispute boils over

The long-running bitter spat between Taro Pharmaceutical Industries and Sun Pharmaceutical Industries boiled over during December 2009, as Taro prepared for its Annual General Meeting on 31st December 2009. The two companies have been engaged in a bitter dispute for over 18 months, after Sun entered into negotiations to acquire Taro. The bid began amicably enough, with Sun forwarding a large sum of money to Taro in order for the Israel-based firm to avoid going bankrupt, and Sun's attached bid price for Taro's shares was met with approval from Taro's Board of Directors. However, after that, events became very sour, as Taro's fiscal position improved and the company claimed that Sun's offer was too low. What began as a friendly takeover bid has become increasingly fraught, with the issue being brought to Israel's Supreme Court; the legal issues remain unresolved.

Prior to the AGM, Taro's Chairman, Barrie Levitt, sent a letter to the firm's shareholders, containing the usual encouragement to vote at the AGM. However, the letter, along with a second letter sent out a few days later, took the opportunity to warn shareholders of what Taro believed was Sun's attempts to take over the firm by more stealthy means, through voting down the Taro Board's recommended nominees. Mr Levitt claimed in his first letter that Sun had been trying to take Taro over by every conceivable means bar one: offering a fair price to shareholders for the firm's shares. By way of a warning should Sun succeed, the letters pointed to Caraco Pharmaceutical Laboratories, the US-based company that is majority-owned by Sun. Caraco had a difficult year in 2009, with the FDA shutting the firm's manufacturing plant down and seizing its products; Taro saw this as an example of Sun's management inabilities.

Naturally, Sun refuted Taro's allegations. In a letter sent to Taro's shareholders by Dilip Shanghvi, Sun's Chairman and Managing Director, itself rather an unusual move, Sun claimed that it had been wronged by Barrie Levitt and his family, with complicity from Taro's Board of Directors, in moves which were designed to prevent Taro from carrying out its contractual obligations. Sun's letter countered Taro's allegations about Caraco, and instead turned attention to Taro's financial situation. The letter noted that Taro has been unable to file valid financial data for some time. Sun claimed Taro's share price had decreased by 86% over the past six years, resulting in the loss of US$1.6 billion of shareholder value. In contrast, Sun said that its share price had increased by 406%, adding US$5.1 billion in value for Sun's shareholders. Taro, on the other hand, claimed that its results since 2007 had seen a turnaround and exceptional growth in Taro's sales and profitability.

What were the other shareholders to make of this spat? Predictably for this battle, their response was unclear. Following the AGM, both Taro and Sun claimed that shareholders had more or less voted in their favour. Taro was able to report that shareholders approved the election of all the Directors who had been up for election. However, shareholders had not approved the appointment of nominated external Directors. Sun in turn claimed that the shareholders had sent a decisive message that they would no longer welcome the leadership of Mr Levitt and his Board, seeing the non-vote of the external Directors as evidence. Despite the overall approval, Sun argued that in fact 78% of Taro's minority shareholders had voted against the continued service of current Directors, and claimed that shareholders holding over two-thirds of Taro's equity had voted to remove the Levitt family and their associates. However, this had not been reflected in the overall vote because Taro's capital structure gave the Levitt family extra voting power. In a further move, in January 2010, Sun sent a letter to Taro's Directors threatening legal action if they did not respond to wishes of Taro's minority shareholders and reverse their course of action. Clearly, for these two firms, the bitter claims and counter-claims continue. Perhaps Israel's courts will be the only entity that can resolve their differences.

Ian Platts – Editor, World Generic Markets