NEW
YORK, Jan. 30, 2024 /PRNewswire/ -- Krensavage
Asset Management today sent the following message to a special
committee evaluating Sun Pharmaceutical Industries Ltd.'s bid for
Taro Pharmaceutical Industries Ltd.
Krensavage Asset Management LLC
610 Fifth Avenue
Suite 301
New York, NY 10020
info@krensavage.com
Taro Special Committee
Linda Benshoshan
linda@lindabs.co.il
Dear Linda,
As the largest minority shareholder1 of Taro
Pharmaceutical Industries Ltd. (NYSE: TARO), Krensavage Asset
Management LLC remains opposed to Sun Pharmaceutical Industries
Ltd.'s inadequate bid to take Taro private.
Since we expressed our dismay in an open letter July 19, Sun, a 78.5% Taro shareholder, hiked its
bid 13% to $43 a share, valuing Taro
at $1.6 billion. Sun on May 26 disclosed a $38 lowball bid for Taro.
Sun's new offer amounts to a 9% discount to the value of Taro's
tangible assets, primarily $35 a
share of net cash. Including real estate and other hard assets,
Taro's liquidation value likely approaches $47 a share2.
Sun is valuing Taro at $310
million, net of cash, for a business that generated
$2.4 billion of cash in the 10 years
ended March 31, the close of Taro's
most-recent fiscal year.
We question if the special committee Taro appointed to consider
Sun's bid is neglecting its responsibility by embracing a
transaction that fails to recognize Taro's carcass value, much less
its ability to generate cash. None of Taro's board members own
shares of the company, according to a November 17 proxy.
Taro shares would sell for $77 a
share—before a takeover premium— if they traded at 4.9 times gross
profit, the average multiple of six peers.
|
Taro Peer
Values
|
|
|
Company
|
Market
Capitalization1
( $ millions )
|
Net Cash ($
millions)
|
Enterprise
Value
($ millions)
|
Revenue
Multiple2
|
Gross Profit
Multiple2
|
Free Cash Flow
Yield
over Enterprise Value3
|
|
Teva Pharmaceutical
Industries Ltd
|
11,520
|
-17,725
|
29,245
|
1.9
|
3.9
|
2 %
|
|
Perrigo
CompanyPlc
|
4,481
|
-3,488
|
7,969
|
1.8
|
4.8
|
4 %
|
|
Viatris Inc
|
13,839
|
-17,075
|
30,914
|
2.0
|
4.6
|
7 %
|
|
Sandoz Group
AG4
|
14,261
|
-4,592
|
18,853
|
2.0
|
4.0
|
3 %
|
|
Amneal Pharmaceuticals
Inc
|
1,606
|
-2,602
|
4,209
|
1.7
|
4.5
|
3 %
|
|
Amphastar
Pharmaceuticals Inc
|
3,027
|
-338
|
3,365
|
4.7
|
7.8
|
4 %
|
|
Mean
|
|
|
|
2.3
|
4.9
|
4 %
|
|
|
|
|
|
|
|
|
Taro Pharmaceutical
Industries Ltd
|
1,616
|
1,306
|
310
|
0.5
|
1.0
|
28 %
|
|
1Share
prices as of 1/17/23, except for Taro which uses $43 offer
price
|
|
2
Latest quarter annualized
|
|
3Trailing 12 months
|
|
4Sandoz
Group AG financials are as of 6/30/23
|
Taro in an October 26 earnings
report disclosed $6.1 million of
spending primarily for the special committee's work including the
hiring of an investment bank that has deemed Sun's bid fair to
Taro's shareholders.
Taro's bankers have lowballed before. In August 2012, when Sun was pursuing Taro in a bid
that failed, an investment bank Taro hired to value the company
relied on management's projections it would generate net income of
$835 million between 2012 and
20163. Taro in fact generated $2.1 billion of net income.
With a market value of $40.2
billion4, Sun can pay more. Sun is offering, net
of Taro's cash, $67 million for the
roughly 8.1 million Taro shares it doesn't own5. In
December 2019, Taro paid $91 a share to repurchase its stock in a tender
offer – more than twice Sun's current bid.
Sun requires approval of the majority of Taro's minority
shareholders. Unless Sun acknowledges Taro's value, we continue to
decline to support the transaction.
Michael P. Krensavage
Managing member
Krensavage Asset Management LLC
Notes:
1Krensavage Asset Management's 640,735 shares of Taro
on September 30 make it Taro's No. 2
shareholder, according to Bloomberg.
2Tangible assets reflect $1.8
billion of shareholders' equity less $17 million of goodwill. Weighted-average shares
outstanding totaled 37.6 million in the quarter ended December 31.
3Presentation to special committee August 12, 2012:
sec.gov/Archives/edgar/data/906338/000094787112000742/ss157108_ex99c2.htm
4Bloomberg lists Sun's closing market capitalization
on January 29 as $40.2 billion.
5Taro had 37,584,891 weighted-average shares
outstanding in the quarter ended December
31. Sun controlled 29,497,813 shares of Taro according to
Sun's Jan. 17 13D/A.
Contact:
David W. Walbert
Senior Analyst
Krensavage Asset Management LLC
Office: (212) 706-0589
info@krensavage.com
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SOURCE Krensavage Asset Management LLC