Taro Pharma’s largest minority shareholder, Templeton Asset Management, has reportedly decided to withdraw its appeal against Sun Pharmaceutical Industries.
Templeton holds about 10% stake in Taro. Sun holds 24.3% voting rights and 36.4% economic interest in Taro.
Taro’s promoters are contesting Sun’s binding agreement to buy out Taro in the US and Israel courts. Earlier, Templeton was supporting Taro’s chairman, Barrie Levitt. However, serious concerns about Taro’s health drove Templeton to remove barriers for transfer of control.
Prashant Vaishampayan and Priti Arora of Kotak Institutional Equities maintain that support from other shareholders for Sun Pharma is welcome but that is not going to change the current impasse in any way. “Sun Pharma is legally not allowed to buy Taro shares from other shareholders at any price other than open offer which is currently on,” the analyst duo wrote in a note to clients on December 2.
At $7.75 per share, the offer price is lower than the market price of about $9 per share. Hence, shareholders may not participate in the open offer. On the other hand, Templeton’s support would help Sun if a special tender offer is required, since minority shareholders are required to approve the special tender. The acquisition of Taro would help Sun gain scale and reach the US markets faster. Analysts expect the deal to be return on investment accretive in the near term, as Sun would use idle cash on its balance sheet to fund the deal.
Sun’s September quarter results got a boost from one-time gains. Consolidated revenues increased 0.6% year on year. The company booked non-recurring income worth Rs 130 crore. Domestic revenues grew at a slower pace of 5% against management guidance of 13-15%. Operating profit margins dropped 793 basis points to 37.7%, driven by higher costs. Net profit declined 11.5%.
At Rs 1,495.35, the stock trades at 23.6 times its estimated earnings for 2010. Analysts are positive on the stock.
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