Taro Pharmaceutical Industries (Nasdaq: TARO), an Israeli generic drugs company known for playing its cards close to its chest, won't be dealing in the public arena any more. It has accepted an offer from Mumbai-listed Sun Pharmaceutical Industries in a transaction valued at $454 million, including debt assumption.

Sun is paying $7.75 per Taro share in cash, conferring a premium of 27% over Taro's closing price of $6.10 per share on May 18, 2007. The equity value of the transaction is therefore $230 million, the companies said.

The multinational Indian firm, founded in 1994, will also refinance about $224 million of Taro's net debt, hence the nearly half-billion dollar transaction value.

Taro and Sun also announced that they have entered into a separate definitive agreement for Sun to hand over $45 million interim equity financing, immediately, by acquiring 7.5 million of Taro's stock. Otherwise Taro would have had trouble meeting bond and interest payments on time.

As said Sun will pay all shareholders, including the Levitt and Moros families who founded Taro, $7.75 for each ordinary share. But Dr. Barrie Levitt will get nothing for the founders' shares he possesses, which granted him a third of the voting power.

Taro began the process of takeover two months ago, bowing to its protracted losses and liquidity crunch. It solicited offers from more than 20 potential buyers. Negotiations did commence with several.

The company explains that in consultation with its financial advisers, the Blackstone group, and the board, the unanimous decision was reached that Sun's offer would serve the interests of the company, its workers, its shareholders, its customers and its suppliers the best.

Technically, Sun will be establishing an Israeli subsidiary that merges with Taro, subject of course to the approval of Taro's shareholders and of regulators in the countries where Taro operates, mainly Israel and the United States.

Merrill Lynch, Pierce, Fenner & Smith Incorporated provided a fairness opinion to the Board of Directors of Taro in connection with the proposed merger.

"We are pleased that this transaction meets our objectives of achieving value for our shareholders and establishes Taro as an integral platform for growth within the Sun organization," commented Barrie Levitt, Taro chairman. "Sun is a highly respected, multinational pharmaceutical company and is an excellent home for our employees and our products. We very much appreciate the support of our employees, customers and financial institutions during the recent months and believe that the transaction with Sun will put Taro on a course towards financial stability and growth in its worldwide markets."

Sun chairman and managing director Dilip Shanghvi stated, "We look forward to working with Taro and its employees going forward. This is a good opportunity for Sun and Taro to work together to create increasing value and add a complementary multinational organization to Sun's business.

"We intend to build on Taro?s expertise in dermatology and pediatrics along with specialty and generic pharmaceuticals, and over-the-counter products. With the addition of 170 talented scientists to our team we look forward to an increasing number of product filings of higher complexity."

Established in 1983, listed since 1994 and headquartered in India, Sun Pharmaceutical Industries Ltd. is an international, integrated, specialty pharmaceutical company. It manufactures and markets a large basket of pharmaceutical formulations as branded generics as well as generics in India, the U.S. and several other markets across the world. In India, the company is a leader in the niche therapy areas of psychiatry, neurology, cardiology, diabetology, gastroenterology, and orthopedics.

For the fiscal year ending on March 7, 2007, Sun posted net sales of 20.8 billion rupees ($515 million), and netted 7.7 billion rupees ($192 million).

Based on the latest closing price on the Indian stock exchanges, Sun?s market cap is $5 billion.

International sales comprise 43% of Sun's revenues. Of this, U.S. generic sales are 23%.

Sun has filed 111 ANDAs in the U.S. of which 34 are approved. Over 12% of net sales has been invested in R&D every year for the last five years, it says. Sun employs a team of more than 550 scientists who work on complex products for all its geographies.

Lawsuits in the works

Meanwhile, there is an outstanding lawsuit against Taro. On May 10, 2007 Franklin Advisers, and Templeton Asset Management, the beneficial owners of about 9% of Taro, filed an initiating motion in the Tel Aviv District Court, seeking certain remedies intended to prevent alleged oppression of minority shareholders.

They also filed a motion for the appointment of a special interim manager to review Taro's efforts to identify an appropriate transaction.

On May 19, 2007 Franklin Advisers and Templeton filed a supplemental request with the court indicating that they believed a transaction involving Taro was imminent, and seeking a temporary injunction to prevent Taro from entering into any transaction that might result in oppression of minority shareholders.

If the court blocks the interim equity financing with Sun, Taro won't be able to make timely payment of the principal and interest payment due on its 2003 bonds on May 21, 2007.

The motion for a temporary injunction is scheduled to be heard on May 21, 2007.

Taro says it believes that the proceedings are without merit and are detrimental to the best interests of shareholders and itself. It intends to contest the action vigorously, it says.