Sun Pharmaceutical disagrees with Taro's termination of merger agreement

By Lisa Kerner

Charlotte, N.C., May 29 - Sun Pharmaceutical Industries Ltd. said despite its claims to the contrary, Taro Pharmaceutical Industries Ltd. is not entitled to terminate its merger with Sun.

On May 28, Taro announced that its board of directors unanimously voted to terminate the May 18, 2007 merger agreement with Aditya Acquisition Co. Ltd., a Sun subsidiary.

Sun chairman and managing director Dilip Shanghvi, in a May 29 letter to Taro chairman Barrie Levitt, accused Taro of failing to honor "its side of the bargain" and ignoring Sun's attempts to bring the deal to Taro shareholders.

"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," Shanghvi said in the letter.

Shanghvi also questioned Taro's purported turnaround, noting that the company has only $47 million in cash as of March 31.

"This means that, if not for Sun's cash injections of approximately $60 million last year, Taro would have virtually negative cash - hardly the 'dramatic' improvement of which Taro has boasted," Shanghvi said.

Sun, Taro's largest shareholder, said it will now consider all of its options, including legal proceedings, regarding Taro's right to terminate the merger agreement.

As already reported, Taro originally agreed to be acquired by Sun for $7.75 per share in cash in a deal valued at $454 million including the refinancing of about $224 million in net debt.

Either party could terminate the agreement after Dec. 31, a Taro news release said.

According to Taro, the agreement had become "stale" and does not reflect the "dramatic operational and financial turnaround" achieved by the company.

Sun's offer to raise the price to $10.25 per share was also considered inadequate by Taro's board.

Taro is a pharmaceutical company with offices in Israel and Hawthorne, N.Y.

Mumbai-based Sun makes specialty pharmaceuticals and active pharmaceutical ingredients.

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