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Raging Capital Calls On Taro Pharmaceutical Shareholders To Vote Against The Taro / Sun Pharma Merger

ROCKY HILL, N.J., Sept. 19, 2012 /PRNewswire/ -- Raging Capital Management, LLC ("Raging Capital"), one of the largest unaffiliated shareholders of Taro Pharmaceutical Industries Ltd. ("Taro") (NYSE: TARO), has issued an open letter to shareholders of Taro calling on shareholders to vote down the proposed "going private" merger between Taro and Sun Pharmaceutical Industries Ltd. ("Sun").  Raging Capital believes that Sun's offer to take Taro private at a price of $39.50 per share significantly undervalues Taro.  Accordingly, Raging Capital intends to vote against the proposed merger and encourages other minority shareholders of Taro to do the same. 

The full text of the letter follows:

Dear Fellow TARO Shareholders,

Raging Capital Management, LLC is one of the largest unaffiliated shareholders of Taro Pharmaceutical Industries Ltd. ("TARO" or the "Company").

We believe that Sun Pharmaceutical Industries Ltd.'s ("Sun") offer to acquire TARO for $39.50 per share in a "going private" merger (the "Merger") materially undervalues the Company.  As a result, WE INTEND TO VOTE AGAINST THE PROPOSED MERGER AND CALL UPON OUR FELLOW UNAFFILIATED SHAREHOLDERS TO DO THE SAME.  If you believe $39.50 is an acceptable price, you might as well sell your shares into the marketplace – where the stock trades at a significant premium to Sun's offer price.

We also call on TARO's Board of Directors and Special Committee to IMMEDIATELY WALK AWAY FROM THIS PROPOSED DEAL, AS IS THEIR RIGHT UNDER THE MERGER AGREEMENT.  We believe the Board has significantly undervalued the Company.  In our opinion, TARO is an extremely high-quality and unique asset with important scale and presence in the North American generic topical creams, ointments, and dermatological markets.  There are only a handful of companies with TARO's research, development, marketing, and distribution capabilities.  A transaction with Sun at $39.50 does not maximize value for all shareholders – it only maximizes value for Sun.

At $39.50 per share, we estimate TARO is being valued at just over 6x its run-rate EPS and less than 5x EBITDA after subtracting the Company's nearly $7.00 per share in net cash.  In our opinion, at this valuation an investor would be hard-pressed to find an equity security of TARO's quality and cheapness anywhere else on the planet.  In fact, we challenge Sun and TARO to demonstrate that $39.50 is a reasonable valuation especially when comparable assets have sold from anywhere between 8x to 12x EBITDA during the past nine months. 

The reality is that TARO is of significant actual and prospective value to Sun, a $12.8 billion market cap company in India.   TARO currently represents nearly 37% of Sun's EBITDA; valued at Sun's current market multiple, this would imply a value of $107 per share for TARO.  Strategically, TARO represents an irreplaceable component of Sun's plans to expand globally and into North America. 

The TARO proxy statement and Citigroup's "fairness opinion" that attempts to rationalize the merits of Sun's offer is insulting to shareholders.  A judge should throw the book at TARO and Sun for projecting 2012 EBITDA of just $267 million when TARO generated $145 million in EBITDA in the first two quarters of 2012 alone.  Based on year-to-date and Q2 results and considering current pricing and script volume data, we estimate full year EBITDA could be between $320 and $350 million, approximately 20% to 31% higher than TARO's and Sun's lowball estimate. 

Fortunately, Israeli law provides for significant minority shareholder protections, including a "majority of the minority" rule that allows minority shareholders to vote down this proposed Merger.  For these reasons, WE INTEND TO VOTE OUR SHARES AGAINST THIS PROPOSED MERGER AND CALL ON FELLOW UNAFFILIATED SHAREHOLDERS TO DO THE SAME.

Thank you in advance for your support.


William C. Martin

Chairman & Chief Investment Officer
Raging Capital Management, LLC

SOURCE Raging Capital Management, LLC
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