Sun Pharmaceuticals has started bidding for the assets of Taro Pharmaceuticals, the Israeli company in what is considered to be the first ever hostile takeover bid by an Indian company for the control of a global company. Sun has been locked in a lengthy corporate battle for control over Taro after the latter allegedly backed out of an agreement for a merger.
Alkaloida Chemical Company Exclusive Group Ltd. (Alkaloida), a subsidiary of Sun Pharma, has started a tender offer for all outstanding ordinary shares of Taro for $7.75 (Rs 332.82) per share in cash on late Monday evening. The offer is to acquire all the shares held by the controlling shareholders of Taro. The bid, if successful, would bypass Taro’s management and minority shareholders including Brandes Investment Partners and Franklin Templeton Asset Management. The two minority shareholders, who together hold 16 per cent in Taro, were instrumental in denying Sun an outright takeover, and later on opposed even a merger of the two companies.
Sun Pharmaceuticals shares closed up 4.42 per cent at Rs 1392.55 at end of trade on Monday. The benchmark Bombay Stock Exchange Sensex fell 2.47 per cent, or 340.62 points in the same session.
The takeover offer comes from a Merger Agreement which stated that in the event the merger was not completed, Taro’s controlling shareholders led by Taro’s Chairman, Barrie Levitt, would grant Sun Pharma an option to acquire all their shares, including all of the Founders’ Shares of Taro. On May 28, 2008, Taro improperly terminated the Merger Agreement, an action Sun has challenged in the Supreme Court of the State of New York.
Though strictly speaking, the open offer comes from the merger agreement, Sun intends to buyout the Taro management without their approval, which gives the move colours of a hostile takeover.The tender offer is not conditioned on the availability of financing or the approval of the Board of Directors of Taro.
The complete terms and conditions will be set out in the Offer to Purchase, which will be filed with the U.S. Securities and Exchange Commission today, June 30, 2008.
Globally, companies resorting to hostile takeovers have become common in the last few years. For instance, Lakshmi Mittal’s hostile bid to takeover Arcelor Steel, the then second largest steel company in the world, sent ripples through the steel industry. In India too, hostile takeovers have led to bitter corporate battles in the past.
Aditya Birla group company Grasim’s open offer for Larsen & Toubro’s cement business in May 2002 is a case in point.