NEW YORK, Aug. 15, 2012 /PRNewswire/ --
Dear Fellow Shareholders:
BlueMountain Capital Management, LLC together with its affiliates ("BlueMountain") is a global institutional investor with approximately $10 billion of assets under management; BlueMountain is also a shareholder of Taro Pharmaceutical Industries LTD ("Taro" or the "Company"). We are writing to our fellow shareholders to urge you to reject the offer by Sun Pharmaceutical Industries LTD ("Sun") to acquire Taro.We have devoted significant time and resources to analyzing Taro's business, and we believe that Sun's offer materially undervalues Taro.
It is our opinion that there has been an effort by Sun to downplay the value of Taro in order to justify its insufficient offer. These efforts and related results include:
- A de-emphasis of the Company's dramatically improving financial performance in Taro's press releases via its control of the Company and through its own investor communications. Most recently Sun's Managing Director, Mr. Dilip Shanghvi, reiterated on July 25, 2012 in a published interview[1] that "[w]e had earlier indicated that we don't see value in the company significantly beyond what we have said [in reference to Sun's October 2011 offer of $24.50 per share for Taro]. We have to evaluate the rejection of the special panel and then decide the next step. From our point of view, nothing has dramatically changed at Taro after we indicated that we have no plan to change our bid.";
- A dearth of investor communication best practices, such as responding to investor inquiries, holding quarterly conference calls or presenting to the investor community at industry conferences;
- A complete lack of Wall Street research coverage due to these restrictive investor communication practices; and,
- The failure to relist Taro on a major stock exchange in a timely manner.
Despite the inadequate communication with the markets, Taro is required under the securities laws to report quarterly and annual results. These results demonstrate that Taro is performing exceptionally well. Sun knows this better than anyone. That is why Sun attempted to take Taro private in 2011 at $24.50, and that is why it is again trying to do so with another "low ball" offer of $39.50. Sun had defended its $24.50 offer as fair, because it believed that Taro's financial performance at that time was not sustainable due to pricing actions and the potential for competition. If this concern was well founded, then there would be no acceptable explanation for its new higher, yet still inadequate, offer of $39.50, since there has been no indication that concerns with respect to these risks have changed. The only new information since July 25th, when Mr. Shanghvi made his comments justifying $24.50 per share for the Company, is that Taro reported stellar second quarter results that still did not even reflect a full quarter of recent price actions taken by Taro (based on June IMS data). We believe that the current $39.50 offer has no more basis in reality than the $24.50 offer, and that Sun knows that Taro's results will continue to improve materially. We believe that this offer not only undervalues the current performance of the business, but also shifts significant potential future value away from long-term minority shareholders.
We believe that Taro is conservatively worth in excess of $70 per share. We base this view on our analysis of Taro's competitive positioning in its key product lines, its pricing trends, and discussions with wholesalers and competitors. We base it on our observation of what informed, strategic buyers have paid for similar businesses as recently as the last few months. We base it on where similar publicly-traded companies, with fuller disclosure and more transparent investor relations practices, trade in the market. And we base it on Taro's current absolute valuation - by the end of this year, based on publicly available information, we believe that Taro will have approximately $10 in net cash per share and earnings will be annualizing at greater than $7.00 per share, suggesting that Sun's $39.50 offer values Taro at just over 4x run-rate earnings ex-cash. This valuation is unambiguously much too low for a company with a fortress balance sheet and demonstrated pricing power. In addition, we ascribe no value to the tangible hard synergies available to Sun (redundant corporate costs and economies of scale in R&D, manufacturing, and distribution) nor to Taro's strategic value to Sun. On this latter point, Taro further diversifies Sun's US presence in an attractive, less competitive generic topical space.
We have also devoted significant resources to pursuing our rights as shareholders in this matter in both Israeli and US jurisdictions. We will continue to do so as necessary. The good news for minority shareholders is that Israel has robust minority shareholder protections. We wish to make clear to minority shareholders that in order for this deal to be consummated, the Israeli Companies Law requires majority approval of the minority shareholders who actually vote, in person or by proxy, at the special meeting of shareholders. Furthermore, the Israeli Companies Law goes to great lengths to ensure a proper and fair voting procedure, including criminal punishment for anyone who attempts to register and vote as a disinterested minority shareholder who may in fact be an interested shareholder.
In addition, we recognize that the relative illiquidity of Taro's stock may entice certain minority shareholders to vote in favor of the deal. We encourage any shareholder feeling this way to consider the position that we have detailed in this letter as well as those articulated in various letters by other shareholders. We believe that Taro is worth considerably more than $39.50 and with time we expect its valuation and liquidity will reflect this.
BlueMountain believes that the views expressed in this letter point in favor of one inescapable conclusion: Taro's shareholders should vote to reject Sun's inadequate offer for Taro.
Sincerely,
BlueMountain Capital Management, LLC
[1] See (http://www.financialexpress.com/news/taro-may-not-continue-to-gain-from-opportunistic-pricing/979082/0).
SOURCE BlueMountain Capital Management
