NEW YORK, Nov. 30, 2011 /PRNewswire/ -- IsZo Capital Management LP, one of the largest minority shareholders of Taro Pharmaceutical Industries Ltd. (Pink Sheets: TAROF), announced today that it delivered the following letter to the Special Committee of the Board of Directors of Taro demanding that it reject the proposal made by Sun Pharmaceutical Industries Ltd. on October 18, 2011 to acquire the remaining outstanding shares of Taro for $24.5 per share.
November 29, 2011
Board of Directors
Taro Pharmaceutical Industries Ltd.
Euro Park (Italy Building)
Yakum Business Park, Yakum 60972, Israel
Dilip Shanghvi, Chairman of the Board
Dan Biran, Chairman of the Audit Committee
Members of the Special Committee Evaluating Sun Acquisition Proposal
Dear Members of the Board, Audit Committee and Special Committee:
IsZo Capital LP is one of the largest minority shareholders of Taro Pharmaceutical Industries, if not the largest, and has been a shareholder for many years. We are writing to you as a concerned minority shareholder to demand that you exercise your fiduciary duties to us, and to similarly situated minority shareholders, and reject the Sun Pharmaceutical Industries acquisition proposal as the offer price is grossly inadequate, substantially undervalues Taro and is not in the best interests of Taro and the minority shareholders of Taro.
For the reasons set forth below, our stake in Taro is not for sale at this time. Like Sun, IsZo Capital prefers to retain its shares and realize the true value of the company instead of giving away our shares to Sun at the egregiously low price offered.
Rather than expending needed time and energy on Sun's below-market, opportunistic offer, we look to you to take actions that benefit all shareholders of Taro. To this end, we believe that the company and the Board should be moving to re-list Taro's shares on a national securities exchange in the United States. Likewise, we believe that the company and the Board should strongly consider listing Taro's shares on an exchange in India. Such stock exchange listings will not only increase shareholder value but will also establish a real market price for Taro's shares, which as set forth below, is now in excess of $90.9 per share.
We remind the members of the Board, Audit Committee and Special Committee, as our fiduciaries, of the recent history of the company which makes it clear that now is not a good time to sell shares in Taro and there is no urgent reason for a "fire sale" of our shares. The last decade has been a mostly disgraceful and miserable period for the shareholders of Taro. Shareholders have suffered the disgrace of being delisted from NASDAQ, dancing close to the shadow of bankruptcy, years of non-current financials, years of excessive professional fees spent on forensic accounting and the restatement of financials, and years of excessive legal fees, mostly from the fight of the founding members of the company with Sun. To add insult to injury, during this time Taro was managed quite poorly and dramatically unperformed relative to its closest competitors.
After all this misery, the shareholders of Taro are finally close to having current financials, the company is close to being relisted on NASDAQ or the NYSE, and operationally the company is finally starting to catch up to its competitors. Any fiduciary should realize, as a basic matter, that the inherent value of the Taro shares is about to be realized and therefore should not be squandered in a below-market transaction that favors an opportunistic insider.
The compensation that Sun is proposing to Taro minority shareholders, at $24.5 per share, is egregiously below the true value of the shares. In the financial quarter just reported, Taro represented roughly 39% of Sun's consolidated EBITDA. With reference to EBITDA as a proxy for the value of each division in Sun, it is clear that Taro is worth USD $3.9 Billion of Sun's USD $10 billion market cap. This translates into $87.5 per share of Taro. Adding Taro's current net cash position, that becomes $90.9 per share.
Even this valuation approach understates the value of Taro, which although embedded in Sun's share price is clearly growing faster, and has higher margins than the rest of Sun. Recent financial analyst research reports project FY12 revenue growth for Sun of 26% year over year, but after adjustment for Taro revenue from consolidation and from Taro's internal revenue growth, ex-Taro growth is only 7% year over year. Indeed, export formulation sales for Sun are expected to fall by 8% year over year, mainly due to the high base impact of Eloxatin in FY11, which is only marginally offset by generic sales. Further, contributions from Sun's Para-IV opportunities to its Process Analytical Technology (PAT) are also likely to decline in coming years. Clearly, Sun needs Taro in order to maintain double digit CAGR year over year. Given Sun's insider knowledge of Taro's double digit contributions to its growth and margins, Sun knows very well its offer for the minority shares in Taro is grossly below their true value. Further, there is additional value from other benefits of a sale, such as cost synergies and elimination of redundancies, not included in Sun's offer for the shares not controlled by Sun. Based on the above, it is clear that Sun's offer is opportunistic and substantially undervalues Taro on both an absolute basis and relative to Sun.
It appears that Sun's opportunistic behavior is not limited to the grossly inadequate offer price proposed by Sun to acquire Taro. It wasn't lost on us that in Taro's recently filed proxy statement for this year's annual meeting of shareholders 5 of the 9 voting items to be submitted to a shareholder vote (of which Sun controls a substantial majority) relate to significantly bolstering the exculpation, indemnification and insurance protections of Taro's directors and officers (many of which are Sun insiders), including for breaches of their duty of care in some cases, violations of securities laws and disclosure obligations and violations in connection with a merger or other going private transaction.
Taro's Board and management are rightfully concerned with respect to their potential liability in the context of Sun's grossly inadequate and opportunistic offer. Notwithstanding this attempt to bolster their liability protections while Sun's going private transaction looms in the horizon, we fully expect the members of the Board, the Audit Committee and the Special Committee to abide fully by their fiduciary duties to those shareholders of Taro without a personal interest in Sun's plans to take over the company and to ensure that Taro fully complies with all applicable securities laws, regulations and disclosure obligations in all applicable jurisdictions, including the United States and Israel. Under these circumstances, IsZo Capital believes that now is not the appropriate time for the Board to be recommending that Taro's shareholders vote to protect Taro's directors and officers for taking potentially improper actions and does not intend to vote in favor of these management proposals at the upcoming annual meeting.
We believe the proposal by Sun does not offer a compelling alternative to the prospects for Taro given the arrival of its long-awaited financial, operational and strategic turn-around and demand that you, as our fiduciaries, follow your legal and moral obligations to us, and other similarly situated shareholders, to reject Sun's grossly inadequate offer and focus on the stock exchange listing strategies outlined above which are in the best interests of all shareholders of Taro.
Lastly, we are extremely disturbed that Taro has declined to tell us or the general public who the members of the Special Committee are, what are their qualifications, how they were chosen, and whether any have a prior relationship with Sun. Given the conflict of interest that key members of Taro's management and Board have with respect to Sun's acquisition proposal, as one of the largest minority shareholders of Taro, we demand that Taro immediately issue a press release with the information that we have requested regarding the identity, qualifications, and any potential conflicts of interest regarding members of the Special Committee.
/s/ Brian Sheehy
|SOURCE IsZo Capital Management LP|
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