Mumbai: Taro Pharmaceutical Industries has rejected last month's open offer by Sun Pharmaceuticals to acquire all its outstanding ordinary shares for $7.75 each in cash, saying the offer is inadequate. Taro also asked its shareholders not to tender any of their shares.

The board of Taro Pharceuticals Ltd concluded that the offer is ''financially inadequate'' and a ''sham'' because ''we believe Sun knows that it will not be accepted by the shareholders,'' the Israel-based company said in statement.

Taro chairman Barrie Levitt and directors Daniel Moros and Tal Levitt, however, did not participate or vote in the board meeting.

Taro said Sun's tender offer price is far below the current market price of its shares and much less than what Sun paid for Taro shares in the open market recently.

Taro said the board of directors has been advised by its counsel that the offer was in violation of the Israeli companies law.

Sun Pharmaceuticals made the offer after Taro unilaterally cancelled a May 2007 merger agreement between the two companies. 

The open offer was triggered by Sun Pharmaceuticals to effect an option agreement, which allowed Sun to acquire all the shares held by the controlling shareholders of Taro in the event of a failed merger, sources said.

The original merger agreement included an option clause giving Sun the right to buy the promoter shares in Taro at the same price per share as in the original agreement. The option agreement required the tender offer to be made at $7.75 a share - Taro is currently traded at $9.45.

The acquisition of 41 per cent promoters' stake will give Sun overall voting rights of 65 per cent in the company. At present, Sun has a 36 per cent stake in Taro with voting rights of 24 per cent.

Taro chairman Barrie Levitt and his family hold a 12 per cent stake in the company.

The open offer would continue irrespective of the decision of Taro's board of directors, according to Dilip Shanghvi, chairman and managing director of Sun Pharmaceuticals.

Sun Pharma, on 25 June, announced that it would acquire all shares held by the controlling shareholders of Taro, citing the company's pull-back from the merger deal. The tender offer is valid till 28 July, unless extended.
 
Taro now claims that it can do better now and that it has better offers as well. Taro says the offer is coercive and that its counsel has advised against the offer is in violation of the Companies Law - 1999.