Sun Pharma on Thursday threatened legal action against Israel's $313 million Taro Pharmaceuticals, which unilaterally terminated a $454 million all-cash merger deal on Wednesday that would have catapulted the Rs 2404 crore Indian firm into the big league.
Sun said the terms of the merger agreement did not entitle Taro to terminate the deal and added that the company would have been in trouble had it not been for cash support from the Indian company.
"In the light of Taro's action, Sun will now consider all of its options, including without limitation, commencing legal proceedings as to Taro's right to terminate the merger agreement," said Sun Pharma Chairman and Managing Director Dilip Shanghvi in a letter on Thursday to Taro Chairman Barrie Levitt.
On Wednesday, Taro said its board had unanimously determined that permitting the merger agreement signed in May 2007 to remain in force was no longer in the best interest of the company. On Thursday, Sun Pharma's share price fell 5.07 per cent on the Bombay Stock Exchange, from Rs 1,462.70 on Wednesday to Rs 1,388.55. Sun Pharma had a net profit of Rs 764 crore on net sales of Rs 2,099.4 crore for the year ended December 2007.
Shanghvi also dismissed Taro's claims that the merger agreement had become stale and did not reflect the "dramatic operational and financial turnaround that the company had achieved since last year".
"Without Sun's equity contributions totalling nearly $60 million, Taro would be unable to boast of survival, much less a purported financial and operational turnaround," he said. "Without our investment, Taro would not have been able to meet the bond payment due within days of our first investment," his letter said.
Shanghvi also pointed out that Taro had only $47 million in cash as of March 31, 2008. "This means that if not for Sun's cash injection last year of about $60 million, Taro would have virtually negative cash - hardly the dramatic improvement of which Taro has boasted."
Shanghvi also refuted Taro's statement about Sun making the removal of a requirement that Sun would have to get support from one third of the shareholders other than the promoters to close the deal a condition when the Indian firm made a revised offer of $10.25 a share.
"You may recall that your own proxy statement which you refer to in your letter to me, specifically states that Taro only included the one-third disinterested vote requirement 'out of an excess of caution' based on your disclosure," his letter to Levitt said.
Shanghvi also clarified that Sun Pharma has not made an offer to buy Taro at $10.25 per share; it was only a proposal to recommend to Sun's board of directors.
Refuting Levitt's claim that Sun Pharma did not allow its financial advisers to discuss the merger with Taro's advisors, Shanghvi said this was done only recently because it was clear that Taro had no intention of pursuing the merger.
He added that at the Taro board meeting in New York on 14 May, Levitt prohibited board members from asking questions or discussing the merger.
"Such a deal cannot be terminated one-sided by a party since it involves various obligations on the part of both the parties and have commitment to the shareholders. Legally challenging their decision is an option before us, but we have not decided when and where to exercise that option," added Uday Baldota, vice-president, investor relations, Sun Pharma.
