Sun Pharmaceuticals and Israel’s Taro have worked out a mutual agreement to terminate their merger pact which was announced in August.
In a statement, they said termination of the agreement was found to be in the best interests of both parties.
As per the agreement, Sun, which holds 66.3% in Taro, had agreed to buy in cash the remaining Taro shares at $39.50 per share.
In a conference call with analysts, the management, led by founder and managing director Dilip Shanghavi, said they did not want to pay more than $39.50 per share, hence it was best decided to call off the agreement.
Since August, Taro shares have seen as much as a 28% increase to $50.55.
“So to buy the remaining stake and garner Taro shareholder support, Sun has to pay an amount higher than the current share price of $50.55 per share. This implies, it will have to pay about $750 million against the $600 million that was decided in August,” said a senior analyst who did not wish to be quoted.
Thus Sun had to either revise its offer or cancel the same, said another industry expert.
“Now since they have terminated it, the reason could be that Sun might not be wanting to pay a premium to the current price,” said the expert.
Mumbai-based Sun had in 2007 offered to buy Taro for $450 million, but managed to obtain control only in 2010, after a long legal battle with the latter’s ex-promoters.
Ever since Taro’s acquisition, pressure has been piling on Sun from Taro’s minority shareholders who have wanted a better price to part with their stake in the company. The minority shareholders had said in the past that Sun was highly undervaluing their shares.
In October 2011, Sun had made an unsolicited, non-binding offer to acquire the remaining 33.7% stake in Taro that it does not already own for $24.50 per share in cash. However, that offer was rejected by Taro in mid-July 2012, saying it was inadequate and not in the best interests of the company’s minority shareholders.
Said another analyst from a brokerage, “It is a conservative and cautious move by the players, specially Sun. Maybe the company is not optimistic about shelling out more at this point in time. Maybe it fears rejection by Taro shareholders as had happened in the past.”