Taro Pharmaceutical Industries lost somewhere between $95 million to $120 million in the year 2006. It's down to just $13 million cash and owes bondholders and the banks $240 million.
The details appear in the summons that Taro sent to shareholders, to attend an assembly on June 23, on which they'll vote on the company's proposed acquisition by Sun Pharmaceutical Industries of India.
Sun proposes to pay $7.75 per Taro share and to undertake the Israeli drug company's tremendous liabilities.
The biggest obstacle to closing is that under law, to close the deal, Taro needs the support of 75% of the shareholders who attend the assembly, and at least a third of the supporters must have no personal interest in the resolution.
The Levitts, who own 13% of the company's regular shares, and Sun, which already owns 18.6% (or, 31.4% at full dilution), may not vote.
And that means the deal may not close, because not all the other shareholders support it. One shareholder that doesn?t is the Templeton investment fund, represented in Israel by attorney Pini Rubin. Templeton owns 9% of Taro and it hates the proposal.
Templeton paid rather more than $7.75 per Taro share (at its peak, Taro traded at $60 per share). But attorney David Shapiro of Gurnitzky & Co feels that if the Templeton representatives actually read the summons, and study Taro's condition, they'll realize that Sun's is the best offer going. The alternative is that $240 million worth of debt will be called in and the investors, including Templeton, will lose their money.
The summons explains the background to the merger with Sun, and suggests that if the proposal falls through, the company might founder.
Indeed. Taro tells its shareholders that it apparently lost between $95 million to $120 million in the year 2006, on revenues that shrank badly from the year before to $180-200 million. In 2005 it had netted $5.7 million on turnover of $295 million.
And the beating goes in
At the end of 2006 it was down to just $17.1 million in cash, compared with $72.8 million at the end of 2005. The company's liquidity crunch just got worse in the first quarter of 2007. By the end of April it had all of $11.5 million in cash, just three weeks before the company is scheduled to make two payments to bondholders, of $15 million in total. Nonpayment would free the bondholders to call in their debt.
Its losses and liquidity crunch were caused by smaller sales to wholesalers, Taro explains. Its wholesalers are stuffed with Taro merchandise and meanwhile, prices of key drugs such as Warfarin have been falling. New drug launches impacted less than the company had hoped in 2006 and some customers hearing of the company's woes were delaying payments, to protect their rights to refunds and discounts. Meanwhile, the banks refuse to extend more credit.
The upshot is that Taro's creditors are feeling distinctly itchy and started to press the company in the last quarter of 2006. Some of its bankers and bondholders have been calling; during the first quarter, Taro even began putting together a motion to seek protection against creditors, under Chapter 11.
But its short-term liquidity concerns were resolved when Sun agreed to invest $40 million in Taro, in exchange for 6.67 million shares at $6 per share. Don't like it? Barrie Levitt, the man whose management reduced Taro to its sorry situation, warns that if the shareholders buck at the takeover by Sun, Taro may go belly-up.
The summons reveals that Sun has a 30-day option to buy the shares of the controlling families, the Levitts and the Moroses, for $7.75 per share. Exercise of the option is contingent on a tender offer being published for the rest of the shareholders to sell their shares to Sun at the same price.
If Taro calls off the deal because it gets a better offer, or if the shareholders balk, or if Sun withdraws its offer because Taro lied in its presentations – Taro will have to pay Sun compensation of $15.5 million.
Source : Haaretz