Sun Pharma warns of legal action against Taro for stalling merger

29 May 2008

Sun Pharmaceuticals Ltd warned it might be compelled to initiate legal action against Israel'sTaro Pharmaceuticals, which terminated the $454-million merger agreement yesterday.

In a letter to Barrie Levitt, MD and chairman of Taro Pharmaceutical Industries, Dilip Shanghvi, chairman and managing director of Sun Pharma, said, Taro is not entitled to terminate the merger as per the agreement .

''We remain skeptical of Taro's turnaround. Taro has only $47 million in cash as of 31 March 2008. This means that, if not for Sun's cash injections of approx $60 million last year, Taro would have virtually negative cash - hardly the ''dramatic'' improvement of which Taro has boasted. While Sun has made every effort to fulfill its obligations under the merger agreement, Taro has failed to honor its side of the bargain and take all necessary action to consummate the merger. Further, Taro has ignored our attempts to discuss, and put forward to Taro's shareholders, an increase in the merger consideration in order to complete the transaction,'' Sanghvi said in his letter.

Sun, he said, will now consider all of its options. ''We continue to believe that a merger with Sun at $10.25 per share that we have offered to recommend to Sun's board is in the best interests of all Taro shareholders,'' he added.

Taro had yesterday said its board of directors unanimously determined that the merger agreement, signed in May 2007, force was no longer in the best interest of the company.  (See: Israel's Taro to terminate merger with Sun Pharmaceutical)

Taro also cited differences over the share price and an unexpected operational and financial turnaround since last year.