UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
SCHEDULE
14D-9
Solicitation/Recommendation
Statement Under Section 14(d)(4)
of
the Securities Exchange Act of 1934
TARO
PHARMACEUTICAL INDUSTRIES LTD.
(Name of
Subject Company)
TARO
PHARMACEUTICAL INDUSTRIES LTD.
(Name of
Person(s) Filing Statement)
Ordinary
Shares, NIS 0.0001 nominal (par) value per share
(Title of
Class of Securities)
M8737E108
(CUSIP
Number of Class of Securities)
Taro
Pharmaceutical Industries Ltd.
Ron
Kolker
Senior
Vice President, Chief Financial Officer
Italy
House, Euro Park
Yakum
60972, Israel
+972-9-971-1800
(Name,
Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of
the Person(s) Filing Statement)
With
copies to:
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Jeffrey
W. Tindell
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David
H. Schapiro
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Skadden,
Arps, Slate, Meagher & Flom LLP
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Yigal
Arnon & Co.
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Four
Times Square
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1
Azrieli Center
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New
York, New York 10036
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Tel-Aviv
67021
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(212)
735-3000
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Israel
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+972-3-607-7856
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[ ] Check
the box if the filing relates solely to preliminary communications made before
the commencement of a tender offer
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Item
1.
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Subject
Company Information.
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The name
of the subject company is Taro Pharmaceutical Industries Ltd., a company
incorporated under the laws of the State of Israel ("Taro" or the
"Company"). The Company's principal executive offices are located at
Italy House, Euro Park, Yakum 60972, Israel. The Company's telephone
number is +972-9-971-1800.
The title
of the class of equity securities to which this Solicitation/Recommendation
Statement on Schedule 14D-9 (this "Statement") relates is the Company's ordinary
shares, NIS 0.0001 nominal (par) value per share (the "Ordinary
Shares"). As of June 30, 2008, there were 39,460,257 Ordinary Shares
outstanding.
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Item
2.
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Identity
and Background of Filing Person.
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This
Statement is being filed by the subject company, Taro. Taro's name,
address and business telephone number are set forth in Item 1
above.
This
Statement relates to the tender offer by Alkaloida Chemical Company
Exclusive Group Ltd., a company organized under the laws of the Republic of
Hungary (the "Offeror") and a subsidiary of Sun Pharmaceutical Industries Ltd.,
a company organized under the laws of the Republic of India ("Sun India" and,
together with the Offeror and their respective affiliates, collectively, "Sun"),
to purchase all of the outstanding Ordinary Shares for $7.75 per share, net to
the seller (subject to withholding taxes, as applicable) in cash, without
interest, upon the terms and subject to the conditions described in the Tender
Offer Statement on Schedule TO (together with the exhibits thereto, the
"Schedule TO"), filed by Sun with the Securities and Exchange Commission (the
"SEC") on June 30, 2008. The consideration offered in the tender
offer, together with all of the terms and conditions applicable to the tender
offer, is referred to in this Statement as the "Sun Offer."
The
Schedule TO states that the Offeror’s principal executive offices are located at
Kabay János u. 29, H-4440 Tiszavasvari, Hungary, and the telephone number there
is +3648521004. Sun India's principal executive offices are located
at Acme Plaza, Andheri Kurla Road, Andheri (East), Mumbai 400 059 India, and the
telephone number there is +9122 66969699.
According
to the Schedule TO, Sun currently owns 14,356,427 Ordinary Shares and
beneficially owns an additional 3,787,500 Ordinary Shares which it has the right
to acquire at $6.00 per share pursuant to a warrant issued to Sun as part of its
May 2007 investment in the Company. The 14,356,427 Ordinary Shares
owned by Sun represent approximately 36.4% of the Company's outstanding Ordinary
Shares and approximately 24.3% of the total voting power represented by all of
the Company's outstanding voting securities.
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Item
3.
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Past
Contacts, Transactions, Negotiations and
Agreements.
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Except as
described in this Statement, to the knowledge of the Company, as of the date of
this Statement, there are no material agreements, arrangements or
understandings, or any actual or potential conflicts of interest, between the
Company or its affiliates, on the one hand, and (i) the Company's executive
officers, directors or affiliates or (ii) Sun or its executive officers,
directors or affiliates, on the other hand.
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A.
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Agreements,
Arrangements or Understandings, Actual or Potential Conflicts of
Interests,
between the Company or its Affiliates and
Sun.
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(i) The Merger
Agreement. On May 18, 2007, the Company entered into a merger
agreement with Sun (the "Merger Agreement") providing for the acquisition of the
Company by Sun in a transaction in which Taro shareholders would receive $7.75
in cash for each of their shares.
(ii) The Voting
Agreement. In connection with the signing of the Merger
Agreement, on May 18, 2007, certain of the Company's shareholders, Barrie
Levitt, M.D. (Director and Chairman of the Board), Daniel Moros, M.D. (Director
and Vice Chairman of the Board), Ms. Tal Levitt (Director and Secretary), Taro
Development Corporation, a private company controlled by Drs. Levitt and
Moros and members of their respective families ("TDC"), and Morley and Company,
Inc., a private company controlled by Dr. Levitt ("Morley"), entered into voting
agreements with Sun whereby they agreed to vote all of their Taro shares in
favor of the merger agreement and against any competing
transaction.
(iii) The TDC Merger
Agreement. TDC owns 3.1% of the shares that have economic
rights and 50% of the shares that have voting rights in Taro Pharmaceuticals
U.S.A., Inc. ("Taro USA"), which is the Company's principal operating subsidiary
in the United States. Drs. Levitt and Moros and their respective
families are able to vote the majority of the outstanding voting shares of TDC
and thereby control TDC. TDC holds 2,333,971 Ordinary
Shares.
In
addition, at the incorporation of the Company in 1959, two classes of shares
were created: Founders' Shares and Ordinary Shares. One
third of the voting power of all of the Company's voting shares is allocated to
the 2,600 outstanding Founders' Shares, all of which are held by Morley (the
“Founders’ Shares”). TDC holds all of the outstanding Class A shares
of Morley and Dr. Levitt holds all of the outstanding Class B shares of
Morley. Holders of Morley's Class A shares are entitled to elect one
director of Morley and holders of Morley's Class B shares are entitled to elect
two directors of Morley. As the holder of all of Morley's Class B shares, Dr.
Levitt may cause the election of two of the three directors and, therefore, may
be deemed to control the voting and disposition of the Founders'
Shares.
In
connection with the signing of the Merger Agreement, on May 18, 2007, TDC and
Drs. Levitt and Moros entered into a merger agreement with Sun pursuant to which
Sun was to acquire TDC at the same time it acquired the Company pursuant to the
Merger Agreement in a transaction in which the stockholders of TDC would receive
in consideration for their TDC stock, in the aggregate, an amount equivalent to
$7.75 for each Ordinary Share held by TDC. The Levitt and Moros
families did not receive any additional consideration for the Founders’
Shares.
(iv) The TDC Voting
Agreements. In connection with the signing of the Merger
Agreement and the TDC merger agreement, on May 18, 2007, certain TDC
shareholders - - Drs. Levitt and Moros, Ms. Levitt and Dr. Jacob Levitt - -
entered into voting agreements with Sun whereby they agreed to vote all of their
shares of TDC in favor of the TDC merger agreement and against any competing
transaction.
(v) Share Purchase
Agreement. On May 18, 2007, the Company also entered into a
share purchase agreement with Sun (the “Share Purchase Agreement”), pursuant to
which Sun has made equity investments in the Company totaling approximately $59
million. Sun currently has the right to acquire an additional
3,787,500 Ordinary Shares at $6.00 per share pursuant to a warrant issued to Sun
as part of the share purchase agreement.
(vi) The Option
Agreement. On May 18, 2007, Drs. Barrie Levitt and Daniel
Moros, Ms. Tal Levitt, Dr. Jacob Levitt and TDC entered into an option agreement
with Sun (the "Option Agreement") pursuant to which they granted Sun options,
exercisable within 30 days after termination of the Merger Agreement, to acquire
(i) TDC, pursuant to a merger transaction with a subsidiary of Sun for
consideration of approximately $18.1 million (i.e., an amount equivalent to
$7.75 for each Ordinary Share held by TDC), (ii) 2,405,925 Ordinary Shares owned
by Drs. Barrie Levitt and Daniel Moros and Ms. Tal Levitt for $7.75 per Ordinary
Share, and (iii) all of the Class B stock of Morley held by Dr. Barrie Levitt
for no consideration. As noted above, all of the Founders' Shares are
owned indirectly by TDC and Dr. Barrie Levitt through Morley. None of
the individuals who granted the options received any additional consideration
for entering into the Option Agreement. The Option Agreement requires that if
Sun exercises the options, it must promptly thereafter commence a tender offer
for all Ordinary Shares owned by the Company’s other shareholders at $7.75 per
share. The Option Agreement also provides that the consummation of
the transactions contemplated by the options will occur contemporaneously with
the expiration of the tender offer, that the tender offer will expire not later
than 25 business days after its commencement (except that the tender offer
period may be extended as permitted by applicable law or in order to obtain any
necessary governmental approval) and that if any condition to the tender offer
is not satisfied or waived, the options will immediately terminate.
On May
28, 2008, Taro announced that it had acted to terminate the Merger
Agreement. As a result of the termination of the Merger Agreement,
each of the voting agreements, the TDC merger agreement and the TDC voting
agreements expired or terminated in accordance with their respective
terms. Sun is contesting the termination of the Merger Agreement by
the Company.
On June
25, 2008, Sun purported to exercise the options and publicly announced its
intention to make the Sun Offer.
On July
7, 2008, Dr. Barrie Levitt, Dr. Daniel Moros, Ms. Tal Levitt, Dr. Jacob Levitt
and TDC delivered a letter to Sun challenging its purported exercise of the
options.
See Item
8(e) below for a description of certain litigation between the Company and its
directors and Sun.
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B.
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Agreements, Arrangements or
Understandings, Actual or Potential Conflicts of Interest, between the Company or its
Affiliates and the Company's Executive Officers
or Directors.
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(i)
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Voting Power in the
Company
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As of
June 30, 2008, Dr. Barrie Levitt, Dr. Daniel Moros and Ms. Tal Levitt and
members of their respective immediate families controlled an aggregate of
5,072,886 Ordinary Shares and all of the outstanding Founders' Shares,
representing approximately 41% of the total outstanding voting power in the
Company, by reason of their (a) beneficial ownership, other than through TDC, of
an aggregate of 2,738,915 Ordinary Shares (excluding shares issuable upon the
exercise of stock options), (b) their majority ownership of TDC, which owns
2,333,971 Ordinary Shares and (c) Dr. Levitt’s control of Morley, which, through
its ownership of the Founders’ Shares, has one-third of the total outstanding
voting power in the Company.
Dr.
Barrie Levitt and Dr. Daniel Moros are cousins. Ms. Tal Levitt and
Dr. Jacob Levitt are Dr. Barrie Levitt's adult children.
As of
June 30, 2008, the Company's executive officers and directors (other than Drs.
Levitt and Moros, and their immediate families, and Ms. Levitt) (19 persons)
beneficially owned a total of 156,035 Ordinary Shares (excluding shares issuable
upon the exercise of stock options), representing less than 1% of the total
outstanding voting power in the Company.
The
Company paid an aggregate of $4,053,223 to all its executive officers and
directors (22 persons) for services rendered to the Company in all capacities
during the year ended December 31, 2007. This amount does not
include certain additional benefits which, as to all executive officers and
directors, aggregated less than $100,000. In addition, amounts set
aside in 2007 to provide all executive officers and directors with pension,
retirement or similar benefits were $1,096,052. During 2007, the
Company's executive officers and directors received, in the aggregate, options
to purchase 10,000 Ordinary Shares under Taro's stock option plans.
As of
June 30, 2008, the Company's executive officers and directors held options to
purchase an aggregate of 566,900 Ordinary Shares, at exercise prices ranging
from $4.63 to $68.51 per share, under Taro's stock option plans.
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(iii)
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Change of Control
Agreements with Certain Members of Senior
Management
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In
February and March of 2007, the Company entered into change of control
agreements with two of its current executive officers, neither of whom is a
member of the Levitt or Moros families. The agreements provide that
in the event of a change in control of the Company prior to December 31, 2009
and the termination of the individual’s employment other than for Cause, or as a
result of Disability or for Good Reason (as those terms are defined in the
agreements) prior to the third anniversary of the date of the change of control
(the “Term”), the individual would receive a severance benefit equal to his
salary and benefits for the remainder of the Term.
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(iv)
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Indemnification
and Insurance
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Indemnification of Office
Holders
As
permitted by Israeli law, Taro’s articles of association provide that it may
indemnify any of its office holders against the following obligations and
expenses imposed on or incurred by the office holder with respect to an act
performed in the capacity of an office holder: (i) a financial
obligation imposed on him or her in favor of another person by a court judgment,
including a compromise judgment or an arbitrator’s award approved by the court;
(ii) reasonable litigation expenses, including attorneys’ fees, expended by the
office holder due to an investigation or a proceeding instituted against the
office holder by an authority competent to administer such an investigation or
proceeding that was “finalized without the filing of an indictment” against the
office holder without any “financial obligation imposed in lieu of criminal
proceedings” (as such terms are defined in the Israeli Companies Law – 1999), or
an investigation or proceeding that was “finalized without the filing of an
indictment” against the office holder with a “financial obligation imposed in
lieu of criminal proceedings” of an offence that does not require proof of
criminal intent; and (iii) reasonable litigation expenses, including attorneys’
fees, expended by the office holder or charged to him or her by a court in
connection with proceedings the Company institutes against him or her or that
are instituted on the Company’s behalf or by another person or a criminal charge
from which he or she is acquitted, or a criminal charge in which he or she is
convicted of an offense that does not require proof of criminal
intent.
In
addition, the Company has entered into indemnification agreements with all of
its executive officers and directors, which provide that, subject only to
mandatory provisions of applicable law to the contrary, the Company will
indemnify such individuals against the obligations and expenses described above
with respect to an act performed in the capacity of an office holder, subject,
in certain instances, to (i) the obligation or expense being imposed or expended
in connection with a specified event; and (ii) a specific cap. The
indemnification agreements also exempt the individual executive officers and
directors from liability for damages caused to the Company as a result of a
breach of such individual's duty of care, subject only to mandatory provisions
of applicable law to the contrary.
Insurance of Office
Holders
As
permitted by Israeli law, Taro's Articles of Association provide that it may
enter into an insurance contract that would provide coverage for any monetary
liability incurred by any of its office holders with respect to an act performed
in the capacity of an office holder for a breach of the office holder’s duty of
care to the Company or to another person; a breach of the office holder’s duty
of loyalty to the Company, provided that the office holder acted in good faith
and had reasonable cause to assume that his or her act would not harm the
Company; or a financial liability imposed upon him or her in favor of another
person. Taro has obtained liability insurance covering its executive
officers and directors.
Limitations on Exculpation, Insurance
and Indemnification
Israeli
law provides that a company may not exculpate or indemnify an office holder, or
enter into an insurance contract that would provide coverage for any monetary
liability incurred by an office holder, as a result of any of the
following:
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a
breach by the office holder of his or her duty of loyalty unless, with
respect to indemnification and insurance coverage, the office holder acted
in good faith and had a reasonable basis to believe that the act would not
harm the company;
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a
breach by the office holder of his or her duty of care which was committed
intentionally or recklessly, except when it was committed solely by
negligence;
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any
act or omission done with the intent to derive an illegal personal
benefit; or
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any
fine or monetary settlement levied against the office
holder.
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In
addition, under Israeli law, any exculpation, indemnification, or procurement of
insurance coverage for the Company’s office holders must be approved by the
Audit Committee and the Board of Directors (the “Board”) and, if the beneficiary
is a director, by the shareholders, in that order.
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Item
4.
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The
Solicitation or Recommendation.
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(a)
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Background
of the Transaction
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The years
2005 and 2006 were very difficult years for the Company. Taro
suffered, among other things, the restatement of its financial statements for
the years 2003 and 2004, an investigation of the situation underlying the
restatement which led to the resignation of its chief financial officer and
another senior member of Taro’s financial staff, a substantial loss in 2006, the
delisting of the Ordinary Shares from NASDAQ and severe liquidity
issues.
Beginning
in 2006, the Company sought to raise capital or find a merger partner. An
extensive process conducted by one of the Company’s financial advisors, The
Blackstone Group, led to the
execution
of the Merger Agreement and the Share Purchase Agreement with Sun in May 2007.
The Merger Agreement provided for the acquisition of the Company by Sun and for
shareholders to receive $7.75 in cash for each of their
shares. Pursuant to the Share Purchase Agreement, Sun made cash
purchases of newly issued Taro shares in an amount totaling approximately $59
million.
Following
the announcement of the merger agreement, there was significant shareholder
opposition to the proposed merger at $7.75 per share, as well as litigation by
shareholders to block the merger. At the time of the shareholders
meeting to approve the merger, scheduled to take place in July 2007, there was a
real concern that public statements made by the Company’s largest
minority shareholders, Franklin Advisers, Inc. and Templeton Asset
Management Ltd. (together, “Templeton”) and their representatives, and the
numerous court motions filed by Templeton (including a motion to temporarily
enjoin the shareholders meeting, which was ultimately rejected), may have caused
confusion among shareholders.
On the
eve of the shareholders meeting, Sun requested a postponement of the meeting and
asked for additional time to communicate directly with Templeton and certain
other shareholders that opposed the merger. At the same time, Sun
agreed to (i) increase its investment in the Company by partially exercising its
warrants and buying an additional 3,000,000 Ordinary Shares for $18 million, and
(ii) eliminate the non-solicitation provisions of the merger agreement, so that
the Company could determine whether a third party might be willing to propose a
transaction on terms that the shareholders would find more
acceptable. Ultimately, however, efforts to overcome the opposition
to the merger were unsuccessful. The shareholders meeting to vote on
the merger was never held.
During
the period July 2007 and February 2008, Sun advised the Company that
it had engaged in discussions with the largest two shareholder groups that were
opposed to the merger, Templeton and Brandes Investment Partners, L.P.
(“Brandes”), to solicit their agreement to proceed with a merger with Sun at an
increased price per share satisfactory to each of them. To the Company's
knowledge, Sun did not reach any agreement with Templeton. On February 19, 2008,
Sun purchased 3,712,557 Ordinary Shares from Brandes in a privately negotiated
transaction at a price of $10.25 per share in cash.
Shortly
thereafter, Sun proposed to Taro that the Merger Agreement be amended to
increase the merger price to the same $10.25 per share that Sun paid Brandes for
its shares. Sun's willingness to increase the merger price was
conditioned on the following two conditions:
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Eliminate
Disinterested Majority Vote. That
the Company agree to eliminate a disinterested majority vote requirement
under Israeli law, which the parties had previously agreed was required to
consummate the merger. Sun’s demand to remove this requirement
was intended to diminish the influence that the votes of the disinterested
minority shareholders could have on the transaction. Based on the advice
of its Israeli counsel, the Company refused to accede to Sun's
demand;
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Obtain
Updated Financial Opinion. That the Company
agree to obtain an updated financial opinion from Merrill Lynch & Co.,
Inc. (“Merrill Lynch”) regarding the increased merger price. Before acting
to terminate the Merger Agreement, the Board received advice from Merrill
Lynch that, based on Taro’s most recent projections at the time, such
advice was given and other assumptions made, procedures followed, matters
considered and limitations described at such period, Sun's proposed
increased price of $10.25 was inadequate from a financial point of
view.
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Thereafter,
Sun repeatedly rebuffed the Company's attempts to engage in meaningful price
negotiations. Sun refused several requests to have Taro’s investment bankers
meet with Sun’s investment bankers to discuss valuation.
On May
14, 2008, at the invitation of Dr. Barrie Levitt, the Company’s Chairman of the
Board, Mr. Dilip S. Shanghvi, Sun’s Chairman and Managing Director, presented
Sun’s position to the Board. He demanded that the Board accept Sun’s
proposed $10.25 per share price by May 28, 2008 and that, if the Board did not,
he threatened that Sun would commence a tender offer at a lower
price.
Thereafter,
the Board and its advisors evaluated Sun’s presentation and, at a meeting of the
Board held on May 25, 2008, the Board confirmed its view that $10.25 per share
was an inadequate price, even after considering Sun’s presentation.
Given
Sun's steadfast refusal to negotiate, on May 27, 2008, the Board determined that
permitting the Merger Agreement to remain in force was no longer in the best
interests of the Company. The Board determined that the Merger
Agreement had become stale and did not reflect the dramatic operational and
financial turnaround that the Company had achieved since last year, the future
value that the Company expects to achieve from the changes made in its business
model and the value in its new product pipeline. The Board also noted
that the operational constraints in the Merger Agreement were interfering with
the Company’s ability to manage its business for the benefit of all of its
stakeholders, and that, but for certain of these constraints, Taro’s
profitability and cash resources could have been higher. Therefore, the Board
acted to terminate the Merger Agreement.
On May
28, 2008, the Company announced it had terminated the Merger Agreement in
accordance with its terms.
That same
day, Taro filed an action against Sun in an Israeli court seeking, among other
things, a declaratory ruling that, should Sun attempt to purchase additional
Ordinary Shares that would result in an increase in its voting power to more
than 45 percent, it must comply with the "special tender offer" rules under
Israeli law which provide important protections for minority
shareholders. Under these rules, a special tender offer may only be
consummated if (i) the total number of shares tendered exceeds the number of
shares as to which notices of objection to the offer have been filed (excluding
from this calculation, shares owned by the offeror, as well as shares owned by
the holders of more than 25% of the outstanding voting power of the company,
including, in each case, shares owned by their respective affiliates) and (ii)
shares having at least 5% of the outstanding voting power of the company are
tendered and purchased pursuant to the offer.
On May
29, 2008, Sun delivered a letter from Mr. Shanghvi to Dr. Levitt in which he
claimed, among other things, that the Company was not entitled to terminate the
Merger Agreement.
On June
5, 2008, Sun delivered a letter from Mr. Shanghvi to the Company, and issued a
press release announcing, among other things, that Sun intended to dispute the
validity of the Company's termination of the Merger Agreement and that it
objected to the Company's proposed plans to pursue the sale of its Irish
operations.
On June
15, 2008, the Company delivered a letter from Dr. Levitt to Mr. Shanghvi
advising him that the Company categorically denied all of the allegations made
in Mr. Shanghvi's June 5 letter regarding the Company's intention to sell its
Irish operations and that the Company had that day commenced litigation in
Israel against Sun to stop Sun from engaging in practices that the Company
deemed detrimental to the Company's ability to maximize the value of the Irish
operations in a sale. At the same time, the letter invited Sun to
submit an offer to purchase the Irish operations. The letter assured
Sun that
the Company would give any proposal submitted by Sun the same serious
consideration that all bona fide offers would receive. On June 23,
2008, Sun delivered another letter from Mr. Shanghvi to Dr. Levitt reiterating
Sun's objection to the Company's plans to sell its Irish operations and
informing the Company that it would not submit a bid to purchase those
operations.
On June
24, 2008, Sun publicly disclosed the text of this letter and that it had
purchased 797,870 Ordinary Shares the previous day from Harel Insurance Company
Limited in a privately negotiated transaction at a price of $9.50 per share in
cash.
On June
25, 2008, Sun purported to exercise the options under the Option
Agreement. Sun also publicly announced that it would in the next few
days commence a tender offer for all Ordinary Shares at a price of $7.75 as
required by the Option Agreement. At the same time, Sun announced
that it had filed a lawsuit in New York State Court against the Company and its
directors. The lawsuit asserts fraud claims against the Company and
its directors, asks the Court to order the Levitt and Moros families to honor
their promises under the Option Agreement, and asks for an order declaring that
the Merger Agreement was not properly terminated.
On June
30, 2008, Sun commenced the Sun Offer.
Later
that day, the Board held a meeting by videoconference to discuss the Sun
Offer. Representatives of Merrill Lynch and The Blackstone Group, the
Company’s financial advisors, discussed with the Board various financial
analyses of the Sun Offer. The Board then discussed various potential
responses to the Sun Offer. Among other things, the Board authorized
the Company's Israeli counsel to make a motion in the lawsuit that was filed in
Israel on May 28, 2008 seeking a temporary injunction against the Sun Offer on
the grounds that it was required to, but did not comply with, the special tender
offer rules under Israeli law. Following the Board meeting, the
Company issued a press release stating that the Board would evaluate the Sun
Offer within the time period allowed by law and urged the Company's shareholders
not to take any action with respect to the Sun Offer until they had been advised
of the Board's position.
On July
8, 2008, the Board held a telephonic meeting to further consider the Sun
Offer. After reviewing certain of the matters discussed at the Board
meeting held on June 30, 2008, a draft of this Statement and certain other
matters, the Board (with Drs. Levitt and Moros and Ms. Levitt neither
participating in the deliberations nor voting) unanimously resolved to make the
determination and recommendation described in section (b) of this Item
4.
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(b)
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Solicitation
or Recommendation.
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At a
meeting held on July 8, 2008, the Board (with Drs. Levitt and Moros and Ms.
Levitt neither participating in the deliberations nor voting) unanimously
concluded that the Sun Offer is financially inadequate and is a
"sham" offer, because the Board believes Sun knows that it will not be accepted
by the shareholders. Sun’s tender offer price is far below both the
current market price of Taro’s shares and the price Sun paid to acquire other
blocks of the Company’s shares in recent privately negotiated
transactions. In order to gain control of Taro without paying a fair
price to the shareholders, Sun is now making a “low-ball” offer that the Board
believes Sun knows will not succeed, solely for the purpose of exercising
certain options pursuant to an option agreement the Levitt and Moros families
entered into with Sun at the time the merger agreement was signed over a year
ago. In addition
the Board has been advised by counsel that the offer is in violation of the
Israeli Companies Law - 1999.
ACCORDINGLY,
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU REJECT THE SUN OFFER AND NOT TENDER
ANY OF YOUR SHARES.
A form of
letter communicating the Board's recommendation and a press release announcing
the Board's recommendation are filed as Exhibits (a)(1) and (a)(2) to this
Statement, respectively, and are incorporated herein by reference.
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(c)
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Reasons
for the Recommendation
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In
reaching the determination and recommendation set forth in section (b) of this
Item 4, the Board considered a number of factors, including the
following:
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·
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Sun's
offer is absurdly low: Sun's $7.75 tender price is
substantially below the current market price of Taro's shares, and even
further below Sun's proposed increased merger price of
$10.25;
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| |
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·
|
Sun's
offer is unfair: Sun's tender price is far below the
prices Sun recently paid to purchase Taro shares from large minority
shareholders in privately negotiated transactions;
|
| |
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·
|
Sun's
offer is financially inadequate: Before the Board acted
to terminate the Merger Agreement, the Board determined that, based on a
number of factors, including Taro’s operational and financial turnaround,
the future value that Taro expects to achieve from the changes made in its
business model, the value in Taro’s new product pipeline and
the advice received from Merrill Lynch based on Taro’s most
recent projections at the time, Sun's proposed $10.25 increased price was
inadequate from a financial point of view;
|
| |
|
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|
·
|
Sun's
offer is unilateral: Before the Board acted to terminate
the Merger Agreement, Sun repeatedly rebuffed our attempts to engage in
meaningful price negotiations with the Company or its financial
advisors;
|
| |
|
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·
|
Sun's
offer is coercive in at least three
respects:
|
|
|
|
·
|
First,
Sun's proposal to increase the merger price to $10.25 was conditioned on
Taro's agreeing to eliminate certain additional voting requirements that
protect minority shareholders, and that the Company's Israeli counsel
advised the Board were required by Israeli law in order to approve the
merger;
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| |
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·
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Second,
Sun's offer is designed to stampede shareholders into tendering their
shares, at a price below the current market price, so that they won't end
up as minority shareholders in a Sun-controlled company, by not providing
for a second-step transaction at a fair price in which Sun would acquire
any shares not tendered and purchased in the tender offer;
and
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| |
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·
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Third,
Sun admits that its offer is being made at $7.75 in order to force the
Levitt and Moros families to sell their shares at this now unfair and
“low-ball” price pursuant to an option agreement the families entered into
with Sun at the time the merger agreement was signed over a year ago. This
is nothing more than a blatant attempt to gain control of Taro without
paying a fair price to the
shareholders;
|
|
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·
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Sun's
offer is illegal: The Company has been advised by its
Israeli counsel that Sun's offer is required to, but does not, comply with
the "special tender offer" rules under Israeli law that provide important
protections to minority shareholders and that,
therefore,
|
|
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|
Sun's
offer is illegal. The Company has also been advised by its
Israeli counsel that the "trust" described in Sun's offer to purchase will
NOT remedy the illegality of Sun’s offer;
|
|
·
|
Sun's
offer is not the best the Company can do: Since the
Board acted to terminate the Merger Agreement, the Company and its
advisors have had preliminary discussions with, and received expressions
of interest from, other parties potentially interested in entering into
strategic transactions with the Company, including purchasing the entire
Company or making an investment in the Company. While there can
be no assurance that any of these discussions will result in a formal
proposal or that if a formal proposal is made that it will be pursued and
consummated, at least two potentially interested purchasers have expressed
interest at a price level in excess of the highest price Sun has ever
indicated a willingness to pay. Understandably, these
expressions of interest were and are subject to due diligence and other
conditions. The Board is not opposed to a sale of the Company,
but, given the dramatic turnaround in Taro’s performance over the last
year, the Board believes that superior and fair values are
attainable. The Board will prudently consider all alternatives
with a view towards acting in the best interests of all shareholders;
and
|
|
·
|
Sun's
offer is a "sham" offer because the Board believes Sun knows that it will
not be accepted by the shareholders: Sun's objective is
very clear. They are unwilling to acquire the Company at a fair
price through good faith negotiations with the Board and the Company's
management. In order to gain control of Taro without paying a
fair price to the shareholders, Sun is now making a “low-ball” offer that
the Board believes Sun knows will not succeed, solely for the purpose of
exercising certain options pursuant to an option agreement the Levitt and
Moros families entered into with Sun at the time the merger agreement was
signed over a year ago.
|
The
foregoing discussion of the factors considered by the Board is not intended to
be exhaustive but addresses the material factors considered by the Board in its
consideration of the Sun Offer. In view of the variety of factors
considered, the Board did not find it practicable to, and it did not, provide
specific assessments of, quantify or otherwise assign any relative weights to
the specific factors considered in determining to recommend that shareholders
reject the Sun Offer. Such determination was made after consideration
of all the factors taken as a whole. In addition, individual members
of the Board may have given differing weights to different factors.
To the
Company's knowledge, none of the Company's executive officers, directors,
controlled affiliates or subsidiaries currently intends to sell or tender any
Ordinary Shares held by record or beneficially owned by them in the Sun
Offer.
|
Item
5.
|
Person/Assets,
Retained, Employed, Compensated or
Used.
|
The
Company has retained The Blackstone Group and Merrill Lynch (the “Financial
Advisors”) as financial advisors in connection with, among other things, the
Company’s analysis and consideration of, and response to, the Sun
Offer. The Financial Advisors will be paid reasonable and customary
fees for such services and will be reimbursed for out-of-pocket expenses,
including reasonable expenses of legal counsel and other
advisors. The Company has agreed to indemnify the Financial Advisors
and their affiliates against various liabilities and expenses in connection with
its services in connection with the transactions contemplated by the Sun Offer,
including various liabilities and expenses under securities
laws. Merrill Lynch and its affiliates in the past have provided
services to the Company unrelated to the Sun Offer, for which services Merrill
Lynch and its affiliates have received compensation. In the
ordinary
course of business, Merrill Lynch and its affiliates may actively trade or hold
the securities of the Company for its own account or for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
The
Company has retained Georgeson Inc. to assist it in communicating with
shareholders in connection with the Sun Offer. Georgeson will be paid
reasonable and customary fees for such services, will be reimbursed for certain
out-of-pocket expenses and may be indemnified against certain liabilities and
expenses relating to its services in connection with the Sun Offer, including
certain liabilities under the federal securities laws.
Except as
set forth above, neither the Company nor any person acting on its behalf has
employed, retained or agreed to compensate any person to make solicitations or
recommendations to shareholders of the Company concerning the Sun
Offer.
|
Item
6.
|
Interest
in Securities of the Subject
Company.
|
No
transactions with respect to the Ordinary Shares have been effected during the
past 60 days by the Company or, to the best of the Company's knowledge, any of
the Company's directors, executive officers, controlled affiliates or
subsidiaries.
|
Item
7.
|
Purposes
of the Transaction and Plans or
Proposals.
|
Except as
described in this Statement, no negotiation is underway or is now being
undertaken or engaged in by the Company in response to the Sun Offer which
relates to or would result in (i) a tender offer for or other acquisition of
securities by or of the Company, any subsidiary of the Company or any other
person; (ii) an extraordinary transaction, such as a merger, reorganization or
liquidation, involving the Company or any of its subsidiaries; (iii) a purchase,
sale or transfer of a material amount of assets by the Company or any of its
subsidiaries; or (iv) any material change in the indebtedness, present
capitalization or dividend policy of the Company.
The Board
has determined that disclosure with respect to the parties to, and the possible
terms of, any transactions or proposals of the type referred to in the preceding
paragraph might jeopardize any discussions or negotiations that the Company may
conduct. Accordingly, the Board has instructed management not to
disclose the possible terms of any such transactions or proposals, or the
parties thereto, unless and until an agreement in principle relating thereto has
been reached or, upon the advice of counsel, as may otherwise be required by
law.
Except as
described in this Statement, there are no transactions, Board resolutions,
agreements in principle or signed agreements in response to the Sun Offer that
relate to or would result in one or more of the events referred to in the first
paragraph of this item.
|
Item
8.
|
Additional
Information.
|
| |
|
|
(a)
|
Antitrust
|
Pursuant
to the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), certain acquisition transactions may not be
consummated unless certain information has been furnished to the Antitrust Division of
the U.S. Department of Justice (the “U.S. DOJ”) and the U.S. Federal Trade
Commission (the “FTC”) and certain waiting period requirements have been
satisfied. Sun's purchase of Ordinary Shares pursuant to the Sun
Offer is subject to such
requirements
and the purchase of Ordinary Shares pursuant to the Sun Offer may not be
consummated until the applicable HSR waiting period has expired or been
terminated.
Even if
the waiting period expires or is terminated, the U.S. DOJ or the FTC could take
such action under the antitrust laws as either deems necessary or desirable in
the public interest, including seeking to enjoin the purchase of Ordinary Shares
pursuant to the Sun Offer, or seeking the divestiture of Ordinary Shares
acquired by Sun or the divestiture of substantial assets of the Company or its
subsidiaries or Sun or its subsidiaries. State attorneys general may
also bring legal action under both state and federal antitrust laws, as
applicable. Private parties may also bring legal action under the
antitrust laws under certain circumstances. There can be no assurance
that a challenge to the Sun Offer on antitrust grounds will not be made, or, if
such a challenge is made, of the result thereof.
|
|
(b)
|
Israeli
Investment Center
|
The
transactions contemplated by the Sun Offer and the Option Agreement require the
approval of the Investment Center of the Ministry of Industry and Trade of the
State of Israel (the “Israeli Investment Center”) established under the Israeli
Law for the Encouragement of Capital Investments, 5719 — 1959 (the “Investment
Law”). The Investment Law provides that a proposed capital investment
in eligible facilities may, upon application to the Investment Center, be
designated as an “approved enterprise.” Each certificate of approval for an
approved enterprise relates to a specific investment program delineated both by
its financial scope, including its capital sources, and by its physical
characteristics, for example, the equipment to be purchased and utilized under
the program. The tax benefits derived from any certificate of
approval relate only to taxable income attributable to the specific approved
enterprise. The Company has received four approvals granting it a
package of benefits, subject to compliance with applicable
requirements.
|
|
(c)
|
Office
of the Israeli Chief Scientist
|
Under the
Law for the Encouragement of Industrial Research and Development, 1984 (the
“Research Law”), research and development programs that meet specified criteria
and are approved by a governmental committee of the Office of the Chief
Scientist are eligible for grants of up to 50% of the project’s expenditures, as
determined by the research committee, in exchange for the payment of royalties
from the sale of products developed under the program. Regulations
under the Research Law generally provide for the payment of royalties to the
Office of the Chief Scientist of 3-5% on sales of products and services derived
from a technology developed using these grants until 100% of the dollar-linked
grant is repaid. The Company, through its wholly-owned subsidiary,
Taro Research Institute Ltd., has received several grants from the Office of the
Chief Scientist to fund some of its research and development
activities. Under the terms of the grants received by the Company,
the transactions contemplated by the Sun Offer and the Option Agreement, require
the approval of the Office of the Chief Scientist.
|
|
(d)
|
Israel
Lands Administration
|
The
Company is a party to various long-term lease agreements with the Israel Lands
Administration (the "ILA"). Under the terms of these leases, the
transactions contemplated by the Sun Offer and the Option Agreement, require the
approval of the ILA.
Actions
Commenced by Templeton
Between
May and August 2007, Templeton filed three initiating motions in the Tel-Aviv
District Court (the "District Court") stemming from transactions contemplated by
the Share Purchase Agreement and the Merger Agreement:
|
·
|
Oppression
of minority—In this case, Templeton alleged that shareholders of the
Company were oppressed through the issuance by the Company to Sun of
Ordinary Shares at a purchase price of $6.00 per share. The parties to
this lawsuit agreed to reserve 9.5% of the total number of Ordinary Shares
purchased by Sun pursuant to the Share Purchase Agreement for purchase by
Templeton should the District Court rule that the purchase price per share
pursuant to the Share Purchase Agreement was oppressive. On
July 2, 2008, the District Court ordered Templeton to inform the District
Court before October 30, 2008 of the appropriate date to continue
discussion of this case.
|
| |
|
|
·
|
Illegality
of the Sun investment—In this case, Templeton claimed that the
transactions contemplated by the Share Purchase Agreement were concluded
in violation of Israeli law. In April 2008, this case was
dismissed by the District Court. Templeton has appealed this decision to
the Supreme Court of Israel.
|
| |
|
|
·
|
Results
of Shareholders Meeting—In this case, Templeton requested that the
District Court rule that the proposed merger contemplated by the Merger
Agreement which was to be voted on at the shareholders meeting that was
scheduled to take place in July 2007 had been rejected by the Company's
shareholders. On July 2, 2008, this case was dismissed by the District
Court.
|
Special
Tender Offer
On May
28, 2008, the Company and its directors (other than Drs. Levitt and Moros and
Ms. Levitt), who, with the exception of the Company’s statutory independent
directors, are also shareholders, filed an initiating motion in the District
Court seeking a declaratory ruling that, should Sun attempt to purchase
additional Ordinary Shares that would result in an increase in its voting
power to more than 45% of the total voting power of the Company, it can only do
so in compliance with the “special tender offer” rules set forth in the Israeli
Companies Law. On July 2, 2008, Sun filed a motion to dismiss this case and
defer the date for filing a response to the case until the District Court rules
on the motion to dismiss. On July 3, 2008, the Company requested a temporary
injunction ex parte to
prevent Sun from continuing the Sun Offer as a "regular" tender offer in
violation of the "special tender offer" rules of the Israel Companies
Law. Later that day, the District Court ruled that it will decide the
merits of this lawsuit no later than July 28, 2008 (the date the Sun Offer is
currently scheduled to expire).
On July
9, 2008, a class action and a petition for the authorization of the filing of
class action were filed by a shareholder of the Company alleging that Sun, by:
(i) purporting to exercise the options under the Option Agreement; and (ii)
commencing a “regular” tender offer rather than a “special tender offer”,
violated the “special tender offer” rules set forth in the Israeli Companies
Law.
Ireland
On June
15, 2008, the Company filed an initiating motion with the District Court seeking
a declaratory ruling and permanent injunction against Sun from taking actions to
hinder the Company’s efforts to sell its Irish operations.
Termination
of Merger Agreement
On June
25, 2008, Sun filed a lawsuit in the Supreme Court of the State of New York
against the Company and all of its directors. The lawsuit asserts claims for
“fraudulent inducement” and breach of contract against the Company
and its directors with respect to the Merger Agreement, as well as claims
against the Levitt and Moros families relating to the Option
Agreement. Sun asks the Court for an order declaring that the Merger
Agreement was improperly terminated by the Company and for an order to compel
the Levitt and Moros families to perform their obligations under the Option
Agreement.
CAUTION
REGARDING FORWARD-LOOKING STATEMENTS
This
Statement and the documents incorporated by reference in this Statement contain
“forward-looking statements” within the meaning of the safe harbor provisions of
the United States Private Securities Litigation Reform Act of 1995. The
statements in this Statement and the documents incorporated by reference in this
Statement that are not historical facts are forward-looking statements and may
involve a number of risks and uncertainties. When used in this Statement and the
documents incorporated by reference in this Statement, the terms “anticipate,”
“believe,” “estimate,” “expect,” “may,” “objective,” “plan,” “possible,”
“potential,” “project,” “will” and similar expressions identify forward-looking
statements. Generally, forward-looking statements express expectations for or
about the future, rather than historical fact. Forward-looking statements are
subject to inherent risks and uncertainties that may cause actual results or
events to differ materially from those contemplated by such statements.
Forward-looking statements in this Statement and the documents incorporated by
reference in this Statement express expectations only as of the date they are
made. The Company does not undertake any obligation to update or revise such
statements as a result of new information or future events, except as required
by applicable law.
The
following exhibits are filed with this Statement:
|
Exhibit
No.
|
|
Description
|
|
(a)(1)
|
Letter
to shareholders, dated July 10, 2008
|
|
(a)(2)
|
Press
release issued on July 10, 2008
|
SIGNATURE
After due
inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete and
correct.
|
|
|
TARO
PHARMACEUTICAL INDUSTRIES LTD.
|
|
|
|
By:
|
/s/
Ron Kolker
|
|
|
|
Name:
Ron Kolker
|
|
|
|
Title:
Senior Vice President, Chief Financial
Officer.
|
Date: July
10, 2008
INDEX
TO EXHIBITS
|
Exhibit
No.
|
|
Description
|
|
(a)(1)
|
Letter
to shareholders, dated July 10, 2008
|
|
(a)(2)
|
Press
release issued on July 10, 2008
|
|
|
|