The Israeli Supreme Court has ruled in favour of Sun Pharma in the takeover battle of Taro Pharma. 

The apex court unanimously dismissed the appeal by Taro Pharmaceutical Industries Ltd. of the previous ruling by the Tel-Aviv District Court holding that the Israeli special tender offer (STO) rules do not apply to the Tender Offer by Sun’s subsidiary, Alkaloida Chemical Company Exclusive Group Ltd. (Alkaloida), to purchase all outstanding Ordinary Shares of Taro for $7.75 net per Ordinary Share in cash. 

The Court also lifted its temporary order that prohibited the closing of the Offer prior to its ruling. As per Israeli law, the tender offer to purchase the shares will be accepted only if at least half the shareholders agree to sell their shares at the offer price. Sun Pharma, the largest shareholder in the Israeli firm, holds around 36% stake. The companies are locked in a legal battle for the last three years.

Taro had appealed last year to the Supreme Court in Tel Aviv against the decision by a district court (DC) dismissing Taro’s argument, by saying there was no necessity for a special tender offer from Sun Pharma as demanded by Taro for the former to acquire all outstanding shares of the latter.

"The future US court decision will be based on that the recent Israel Supreme court verdict. Sun Pharma can now easily get the controlling stake in Taro," said Ranjit Kapadia, Vice President-Institutional Research, HDFC Securities. He  added that Taro's share price yesterday was $11.4 per share.

To acquire the remaining 20 million shares, Sun Pharma may have to pay another $240 million. "Right now Sun Pharma is holding a 36% stake, which will increase to 48% after the Levitt family surrender its 12% stake up on the US court verdict. It is now up to Sun Pharma management if they want to buy the rest of the 52% stake for a comparatively higher price or they can just control the company with the 48% stake," said Kapadia

"However there are a few concerns like the lack of audited accounts of Taro for the year 2008 and 2009 and quality control of Taro's Canadian facility, which is still under US FDA scanner," said Kapadia.

Sun Pharma had signed a $454 million merger agreement with Taro in 2007 including equity purchase of approximately $230 million at $7.75 per share in cash. However in 2008, Taro unilaterally terminated the agreement citing lower valuations. In 2008, Sun Pharma had launched an open offer to acquire additional stake in Taro, which was challenged by Taro. Following which both companies filed suits in Israeli and the US courts.

In its 69-page decision, the three-judge bench of the Supreme Court of Israel said there were no legal or moral grounds upon which to require Sun to comply with the STO rules.  The Court declared that its ruling in favor of Sun was dictated by concerns of fairness, good faith and commercial stability and affirmed the District Court's finding that Taro and its directors had acted in bad faith.  The Court also awarded Sun expenses.

“Sun is gratified that the Supreme Court of Israel has upheld the decision of the Tel-Aviv District Court.  We are ready to finally move forward now to close the Offer and enforce our rights under the Option Agreement to purchase the Levitts’ controlling shares,” said Dilip Shanghvi, Chairman and Managing Director of Sun.

The Offer is scheduled to expire on the fifth business day following the date Sun announces a ruling on the appeal of the STO litigation.  Thus, the Offer is now set to expire at 12:00 midnight, New York City time, on Tuesday, September 14, 2010.  Also, as previously announced, Alkaloida will provide a subsequent offering period of not less than ten business days nor more than 20 business days following the expiration date.  As of 5:00 p.m., New York City time, on September 3, 2010, 28,882 Ordinary Shares had been tendered and not withdrawn from the Offer.

In July, the United States District Court for the Southern District of New York had rejected Taro’s claims based on allegations that Sun and Alkaloida Chemical Company Exclusive Group Ltd had failed to make adequate disclosures concerning the offer.  The court also rejected Taro’s request for discovery, remarking that Taro had not explained any purpose that discovery would serve.  

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