Krensavage Asset Management Remains Opposed to Sun's Predatory Bid for Taro

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