Sun Pharma's lowball bid for Taro opposed by Krensavage Asset Management

Sun, a 78.5% Taro shareholder, on May 26 offered to acquire the rest of Taro for $38 a share, valuing the company at $1.4 billion.

Sun's inadequate offer amounts to a 17% discount to the value of Taro's tangible assets, namely $36 a share of net cash. If Taro liquidated, shareholders could receive more than $45 a share.

Taro boasts more than just cash and real estate. The maker of generic creams and ointments generated $2.4 billion of cash in the 10 years ended March 31.

Not only is Sun failing to offer a control premium, but it also seemingly ignores Taro's 22 generic drugs awaiting clearance in the U.S., including four with tentative approvals.

With a market value of $31 billion4, Sun can pay more. Sun is offering, net of Taro's cash, $16 million for the roughly 8.1 million Taro shares it doesn't own.

Taro's actions suggest it agrees with our assessment. In December 2019, Taro paid $91 a share to repurchase its stock in a tender offer – nearly two-and-one-half times Sun's current bid.

Sun's tactics ring familiar. In October 2011, it lowballed Taro's shareholders with a $24.50-a-share bid. Ten months later, Sun raised its offer more than 60% to $39.50 after a special committee of Taro directors rejected the bid.

Sun requires approval of the majority of Taro's minority shareholders. Unless Sun acknowledges Taro's value, we refuse to support the transaction.