Grand Slam Asset Management, LLC Writes Letter to Taro Pharmaceutical Industries LTD. Regarding Sun Pharmaceutical Industries' Offer to Purchase the Remaining Outstanding Shares of Taro for an Inadequate Purchase Price
(firmenpresse) - FORT LEE, NJ -- (Marketwire) -- 10/18/11 -- Grand Slam Asset Management, LLC wrote a letter to the Board of Directors of Taro Pharmaceutical Industries LTD. urging them to reject Sun Pharmaceutical Industries' offer to purchase the remaining outstanding shares of Taro and to hire independent counsel and investment advisors to hold an unbiased auction for the Company.
To the Board of Directors of Taro Pharmaceuticals
Taro Pharmaceutical Industries LTD.
Euro Park (Italy Building)
Yakum Business Park
Yakum 60975, Israel
Transmitted by email to Michael Kalb, Chief Financial Officer
Dear Board Members,
We are writing, as one of your significant shareholders, to inform you that Grand Slam Master Fund, LTD (Grand Slam) is wholly unsatisfied with the offer by Sun Pharmaceuticals Industries LTD. (Sun) to purchase the remaining shares of Taro Pharmaceutical Industries LTD. (Taro) from its public shareholders. While we appreciate that Sun is offering a premium to the current publicly traded price of shares, this is not a rational way to value Taro. Taro has traded in the public markets at a discount to its peers despite having strong free cash flows, great operating margins and double digit revenue growth. This was caused by the Board's failure to have Taro's shares trade on a nationally recognized exchange despite qualifying to do so. In no way does the offer at a 23.80% premium to current share price fairly value our shares. We believe a fair offer would be at a minimum of $48.50 per share and we show our methodology in the coming paragraphs and charts.
We have looked at two widely accepted measures of valuing Taro and both yield substantially higher values for the shares than Sun's current offer. The first objective measure of value is the trading multiples for publicly traded generic pharmaceutical companies. The current offer values Taro at an enterprise value (EV) of 8.4 times LTM earnings before interest and taxes (EBIT) and 7.25 times LTM earnings before interest taxes depreciation and amortization (EBITDA). Sun's offer is at a healthy discount to the median EV/EBIT and EV/EBITDA multiples of Taro's competitors despite the fact that Taro is growing more quickly and has higher margins than these companies. These companies are Teva Pharmaceutical Industries LTD. (TEVA), Perrigo Company (PRGO), Watson Pharmaceuticals Inc. (WPI) and Par Pharmaceuticals Companies Inc. (PRX). Their averages and median trading multiples and Sun's offer for Taro are represented in the table below:
If we look at merger and acquisition transactions for publicly traded generic pharmaceutical companies where shareholders are receiving private market value for their shares, the offer by Sun is even more egregiously inadequate. There have been six acquisitions of publicly traded US generic pharmaceutical companies in the last six years. These deals have been done at multiples ranging from 15 times EBITDA on the low end to 24 times on the upper end of the range. Therefore, Sun's offer represents a 50% discount to the lowest deal multiple ever consummated for a US listed generic pharmaceutical company. Sun justifies this offer by declaring that it was at a 23.80%premium to the currently traded stock price, which we know was not a true representation of Taro's worth due to the discount accorded to publicly traded stocks which do not trade on a nationally recognized exchange. Bradley Pharmaceuticals, a direct competitor of Taro was sold for 15 times EBITDA. The table below shows the EV/EBITDA and EV/EBIT multiples paid by acquirers for King Pharmaceuticals, Inc. (KG), Ivax Corporation (IVX), Andrx Corp (ADRX), Bradley Pharmaceuticals Inc. (BDY), Bentley Pharmaceuticals, Inc. (BNT) and Eon Labs, Inc. (ELAB), the average and median of these offers as well as Sun's offer for Taro:
We believe that Sun is well aware of these prevailing market multiples. Sun's own stock trades at 24 times EV/EBITDA and 27 times EV/EBIT in the Indian public markets. Taro makes up approximately one third of Sun's consolidated business. Grand Slam believes that any fair offer for the remaining outstanding public shares of Taro should be at a minimum of 15 times EBITDA or $48.50 per share. This represents a slight premium to the publicly traded comparable companies, while at the same time being very accretive to Sun's shareholders. It also represents the minimum multiple paid for publicly traded generic pharmaceutical companies based on recent EV/EBITDA measures. I urge the Board of Directors of Taro to hire appropriate independent counsel and investment bankers to force Sun to make us a fair offer for our shares or to conduct an unbiased auction of Taro to a buyer willing to pay a fair price.
Yours truly,
Mitchell Sacks
Chief Investment Officer
Grand Slam Asset Management, LLC
Grand Slam Asset Management, LLC was founded in 2001 to offer Institutional and High Net worth investors a sector diversified long-short equity strategy with a focus on value investing in Small and Micro cap US companies. Grand Slam employees a due diligence intensive, bottom-up fundamental analysis approach to investing.
Contact:
Grand Slam Asset Management, LLC
Tel. 201-346-4335
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Datum: 18.10.2011 - 20:24 Uhr
Sprache: Deutsch
News-ID 77582
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