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Sun set on helping Taro, after buying controlling stake

By Gareth Macdonald , 23-Sep-2010

India’s Sun Pharma has finally acquired a controlling stake in Israeli generics firm Taro Pharmaceutical Industries, significantly expanding its manufacturing capacity in North America.

Sun’s acquisition of a 48.7 per cent stake brings to an end the acrimonious legal battle that saw Taro repeatedly try to block rights afforded to Sun under its 2007 investment in the then struggling firm.

The turning point was a recent ruling by the Israeli Supreme Court which, according to India’s Economic Times, finally threw out Taro’s efforts to stop Sun from increasing its shareholding.

Sun chairman Dilip Shanghvi, who replaces Barrie Levitt as head of Taro’s board, cited the Israeli firm’s manufacturing capacity, particularly in pharmaceutical capsule, tablet and liquid formulations, as a key motivation for the deal.

He told Reuters that: “We intend to build on Taro’s market presence in US, Israel and Canada and its expertise in dermatology and pediatrics, along with specialty and generic pharmaceuticals, and over-the-counter products.”

Shanghvi went on to say Sun is committed to enhancing the two facilities’ R&D and complex chemistry capabilities and also stressed that Taro’s employees are an important part of his future plans.

Market response

Initial market reaction to the takeover was spectacular, with Sun’s price on the Bombay Stock Exchange reaching an all time high of INR 1,984.70, before slipping back to close just 0.2 per cent lower.

Ravi Agrawal an analyst at Edelweiss Securities told the Wall Street Journal that: “We view this transaction as positive and a final closure on the long saga of Taro’s acquisition by Sun Pharmaceutical.”

Subsequently however, other observers have been more cautions about the deal with, for example, Ranjit Kapadia, vice president of institutional research at HDFC Securities, suggesting Sun’s impact on Taro’s performance needs careful observation

He also called for more information on Taro’s business outlook, remaining the markets that the firm is yet to publish audited financial statements for 2008 and 2009.

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