Sun Pharmaceutical Industries has raised fresh concerns regarding sale of Irish facility of Taro. The company had sent a strong worded letter to Dr Barrie Levitt, chairman of Taro Pharmaceutical Industries Ltd and said that without Sun Pharma's consent Taro can't sale this facility. The letter also pointed out that the improper termination of the merger agreement does not give Taro the right to sell Taro Ireland without its consent. Any action of this nature will force Sun to hold each of Taro's directors personally accountable. Further, any potential buyer would also be entering into such a transaction at its own, risk, and Sun reserves all its rights against Taro, its directors, and any potential buyer.
The company objected the move in response to Levitt's letter of June 19 to Taro's shareholders, his letter of June 15, to Sun Pharma and the Initiating Motion filed by Taro in the Tel-Aviv District Court on the same day.
Dilip Shanghvi, chairman and managing director of Sun, said in its letter that Taro has been unable to address its substantive objections to the proposed sale of Irish subsidiary (Taro Ireland). Instead, Taro has tried to deflect attention from the logic of our reasoning by accusing us of breaching our duty of good faith to Taro and its other shareholders.
We made public our grave concerns about the proposed sale, not because we were trying to improperly interfere with Taro's business, as your lawsuit claims, but because, as a shareholder and potential owner of Taro - whose efforts to consummate the transaction we signed in 2007 you have no alternative means on alerting other shareholders to the unseemly circumstances of the proposed sale.
Sun pointed out that the company has no intention of interfering with Taro's business. Indeed this would be contrary to our own interests. We do, however, seek full disclosure of the facts relating to the proposed sale of taro Ireland, as well as managements' justifications for what would appear to a rational onlooker to be a disposition of valuable asset at an inopportune time, and on terms highly unfavourable to Taro.
Regarding mishandling of assets, Sun said that its primary objection lies in what it believe to be the Taro's board's mishandling of Taro Ireland. Earlier, Taro said that, Taro Ireland has been costing $8 lakh per month to maintain, and the sale of facility will enhance Taro's cash flows. This is yet another example of an ill-considered approach by the same management that led Taro to the brink of insolvency in 2006-07, requiring Sun to invest nearly $60 million to rescue the company. Selling the assets now may increase Taro's short-term cash flow and improve the company's performance this year. However, such sale would mean falling to realize a potentially substantial return on the investment of almost $5- million which Taro has made in Taro Ireland over the years.
Pursuant to our merger agreement of May 18, 2007, Taro agreed, as is customary in such transactions, to conduct its business in the ordinary course until the closing of the transaction. A sale of Taro Ireland, which is a significant asset, cannot by any stretch the imagination be considered an action in the ordinary course, and as such, Taro was required to obtain Sun's consent to the proposed sale in 2007.
Sun pointed out that the Taro should provide full disclosure regarding the total investment made in Taro Ireland to date, including capitalized losses; the present asset base of Taro Ireland; its financials for the last five years and Taro Ireland's products which have been, or are in the process of being, approved by the Irish and other authorities. The present price is lower than Taro Ireland's existing asset value. Taro has neither been able to reconcile the valuation used in the proposed sale nor provide evidence that this is the best offer available.
Further, Sun's letter pointed out that in addition to the undervaluation and risky form of consideration being proposed, one of the potential buyers has a close relationship with Taro's senior management. The only rational reason we can imagine for a sale so economically and strategically unfavourable to Taro and is shareholders is that it forms part of your concerted effort to discourage Sun from exercising its right to acquire Taro.
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