How a friendly outbound acquisition by Sun Pharmaceutical descended into a hostile takeover war

In May 2007, Mumbai-based Sun Pharmaceutical signed an agreement to acquire Israel’s Taro Pharmaceutical, a generics manufacturer with operations in the US, Canada and Israel, for US$454 million in an all-cash deal. The Indian company intended to use the acquisition as a springboard for global expansion, building on Taro’s expertise in dermatology, paediatrics, specialty pharmaceuticals and over-the-counter products.

Reverse triangular structure

Under the terms of the agreement, Sun was to acquire 50-year-old Taro by paying US$230 million in cash at the rate of US$7.75 per share. This was a 27% premium on Taro’s prevailing share price. Sun also agreed to repay Taro’s debts of US$224 million.

Sun and Taro both had subsidiaries at the time of the deal. Sun was the parent company of Sun Pharma USA and Hungary-based Alkaloida Chemical Company. Taro, meanwhile, owned subsidiaries in Canada and the US.

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