MUMBAI, India, June 24 Sun PharmaceuticalIndustries Ltd. (Reuters: SUN.BO, Bloomberg: SUNP IN, NSE: SUNPHARMA, BSE:524715) yesterday sent a letter to Dr. Barrie Levitt, Chairman of the Board ofDirectors of Taro Pharmaceutical Industries Ltd. (Taro, Pink Sheets: TAROF) inresponse to Dr. Levitt's letter of June 19, 2008 to Taro's shareholders, hisletter of June 15, 2008 to Sun Pharma and the Initiating Motion filed by Taroin the Tel-Aviv District Court on the same day.
Sun Pharma's letter further clarifies its substantive concerns regardingTaro's proposed sale of its Irish facility and seeks full disclosure on behalfof all shareholders of the facts relating to the proposed sale of TaroIreland.
I refer to your letter of June 19, 2008 to Taro's shareholders, yourletter of June 15, 2008 to me and the Initiating Motion filed by Taro in theTel-Aviv District Court on the same day.
It is telling that, in each of these documents, Taro has been unable toaddress our substantive objections to the proposed sale of Taro's Irishsubsidiary ("Taro Ireland"). Instead, you have tried to deflect attentionfrom the logic of our reasoning by accusing us of breaching our duty of goodfaith to Taro and its other shareholders. We find this laughable. We madepublic our grave concerns about the proposed sale, not because we were tryingto improperly interfere with Taro's business, as your lawsuit claims, butbecause, as a shareholder and potential owner of Taro -- whose efforts toconsummate the transaction we signed in 2007 you have blocked at every turn --we have no alternative means of alerting other shareholders to the unseemlycircumstances of the proposed sale.
We have no intention of interfering with Taro's business. Indeed, thiswould be contrary to our own interests. We do, however, seek full disclosureof the facts relating to the proposed sale of Taro Ireland, as well asmanagement's justifications for what would appear to a rational onlooker to bea disposition of a valuable asset at an inopportune time, and on terms highlyunfavorable to Taro.
We once again present our key concerns:
1. Mishandling of Asset. Our primary objection lies in what we believeto be the Taro Board's mishandling of Taro Ireland. Your simplisticstatements that (i) Taro Ireland has been costing $800,000 per month tomaintain, and (ii) its sale will enhance Taro's cash flows, are yet anotherexample of an ill-considered approach by the same management that led Taro tothe brink of insolvency in 2006-7, requiring Sun to invest nearly $60 millionto rescue the company. Selling the asset now may increase Taro's short-termcash flow and improve the company's performance this year. However, such salewould mean failing to realize a potentially substantial return on theinvestment of almost $50 million which Taro has made in Taro Ireland over theyears.
Taro's Election Not to Sell Taro Ireland; Engineering of Accounts.Pursuant to our Merger Agreement of May 18, 2007, Taro agreed, as is customaryin such transactions, to conduct its business in the ordinary course until theclosing of the transaction. A sale of Taro Ireland, which is a significantasset, cannot by any stretch of the imagination be considered an action in theordinary course, and as such, Taro was required to obtain Sun's consent to theproposed sale in 2007. While you make much of the fact that the MergerAgreement required Taro to obtain Sun's consent, you fail to address the truththat Taro could have chosen to, but did not, sell Taro Ireland earlier,especially given that Taro Ireland has been loss-making since the Roscreafacility was acquired in March 2003. Not once during Taro's financial crisisdid you identify a sale of Taro Ireland as a means of improving liquidity.Before we entered into the Merger Agreement with Taro in May 2007, nothingprevented you from pursuing this option.