Sun Pharma – Inching Closer to Taro

Templeton’s [largest minority shareholder (c10% stake) in Taro] decision to switch sides and support Sun’s stance on the Taro impasse significantly boosts Sun’s chances of closing the Taro acquisition, in our view. While there are legal issues still pending in Israel & New York, with the largest minority shareholder on its side, Sun is likely to be able to go ahead even if a special tender offer is required.

Taro will help Sun Pharma gain scale & reach in the US market much faster than it would have been able to on its own – especially important given the disruption in its business from Caraco. Further, given that Sun will be funding the acquisition by using idle cash on its balance sheet.

SUN is legally not allowed to buy TARO shares from other shareholders at any price other than open offer which is currently on. This offer is at US$7.75 a share while market price is well in excess of the offer price (~US$9 a share). As a result, a shareholder may not participate in open offer.

However, the management is striving hard to negotiate and get things going. Sun Pharma is expected to report an EPS of Rs 57 and Rs 65 for FY10 and FY11 respectively.