Sun Pharma intends to increase its share in Taro to 100% in a $300 million Deal

Sun Pharma currently holds 78.48 percent stake in Taro. The company had initiated similar plans a decade earlier as well. The all-cash deal proposes to value Taro at $38 per share, which is a 41.5 percent premium over the stock's average closing price over the last 60 days. The company also plans on delisting Taro from the NYSE on completion of the transaction. It is also a premium of 31.2 percent to Taro's closing price on May 25. Sun Pharma has proposed a reverse triangular merger for this move. For this, the company will form a wholly-owned subsidiary in the form of a Special Purpose Vehicle (SPV), which will enter into a merger agreement with Taro.

The SPV will then merge with and into Taro. The latter's board has appointed an independent committee to evaluate this proposal. Sun Pharma is not willing to consider a sale of Taro's shares to a third party, even as the company evaluates the proposal. This transaction will not be subject to any financial contingency. During Sun Pharma's earnings call, the management said that sales were driven by the specialty business and the high value opportunity of the Revlimid generic in the US. Psoriasis drug Illumya grew by 51 percent during the quarter to $477 million, even on a higher base. Analysts believe that Illumya could be the key growth driver for Sun Pharma over the next five to six years.

The company has guided for a high-single-digit topline growth in financial year 2024 with all businesses positioned for growth. Brokerage firm Jefferies has maintained its buy rating on Sun Pharma but marginally cut its price target to Rs 1,150 from Rs 1,200. It has also lowered its financial year 2024-2025 Earnings per Share (EPS) estimates by 2-3 percent to factor in the Concert Pharma acquisition. It further added that it sees Sun Pharma as the best long-term story in the Pharma space. Nomura has also maintained its buy rating on Sun Pharma with a price target of Rs 1,132. It has lowered its earnings estimate for FY24/25 by 6 percent and 4 percent due to regulatory actions for US market.