Sun Pharma accuses Israel’s Taro of ‘accounting gamesmanship’

June 25th, 2008 - 8:26 pm ICT by IANS  

Mumbai, June 25 (IANS) The spat between Sun Pharmaceutical Industries Ltd and Israel’s Taro Pharmaceutical Industries Ltd worsened Wednesday with the Indian company accusing the latter of indulging in “accounting gamesmanship” over the sale of its subsidiary, Taro Ireland. In a strongly worded letter to Taro chairman Barrie Levitt released here, Sun Pharma chairman and managing director Dilip Shanghvi demanded full disclosure of facts relating to the proposed sale of Taro Ireland.

Failing this, the latter warned, Sun Pharma would “hold each of Taro’s directors personally accountable,” and also any potential buyer.

Referring to Taro’s letter to its shareholders June 19, and its initiating motion before the Tel Aviv district court June 15, Shanghvi said instead of addressing Sun Pharma’s objections to the proposed sale of Taro Ireland, Taro chose to accuse it of breach of good faith.

“We find this laughable,” he said.

Shanghvi said while Sun Pharma had no intentions to interfere in Taro’s operations, it publicly raised concerns to alert shareholders about the “unseemly circumstances” of the proposed sale.

He said its concerns arose from the fact that even Sun Pharma was a shareholder and potential owner of Taro.

Sun Pharma entered into a merger agreement with Taro in May 2007. But Taro attempted to block at every turn its efforts to “consummate” the deal, Shanghvi said.

On the proposed sale of Taro Ireland, Sun Pharma has raised several objections.

The first pertains to what it said is the “mishandling of Taro Ireland”. Sun Pharma referred to Taro’s claims that operational costs at the Irish subsidiary stood at $800,000 per month, and that selling would improve Taro’s cash flow.

Shanghvi said this is an example of the ill-considered approach of the same management that led Taro to the brink of insolvency in 2006-07, requiring Sun Pharma to invest $60 million to rescue it.

Selling Taro Ireland at the present juncture would only have short-term benefits but will not realize a potentially substantial return on the $50 million investment that Taro has made in that company over the past few years, the letter said.

The Sun Pharma head also said that following the merger agreement, Taro was obligated to obtain Sun Pharma’s consent for the proposed sale of Taro Ireland.

Citing various instances, Shanghvi accused Taro of “engineering accounts” with a view to mislead the shareholders.

He also said the terms of the proposed sale were “unfavourable” on various counts and Taro failed to demonstrate transparency in the entire deal.

“The only rationale reason we can imagine for a sale so economically and strategically unfavourable to Taro and its shareholders is that it forms part of your concerted effort to discourage Sun from exercising its right to acquire Taro,” Shanghvi asserted.

Reiterating that this was not the right time to sell Taro Ireland, in view of several favourable developments in the recent past that would help optimize shareholder interests and value, Sun Pharma has demanded that Taro disclose full investments made in Taro Ireland till date, including capitalized losses, its present asset base, complete financials for the last five years, and product details.

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