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Sun's offer to buyout remaining stake in Taro at US$ 24.5/share valuing Taro at US$1bn (valued
at 7.25x EV/EBITDA and 10x PE) is a positive in our view. Sun holds 66.3% stake in Taro at a
total investment of US$ 260m. We expect more value-accretive deals as Sun holds US$1bn in
cash and cash equivalents.
Sun offers to buyout remaining 33.7% stake in Taro - a positive
Sun Pharma has proposed to acquire all outstanding shares of Taro Pharma (Sun's
subsidiary) for a per share consideration of US$24.50 in cash representing a 26% premium
over the 17 October 2011 closing price of US$19.45 (post the offer, Taro's stock closed 23%
higher at US$24/share). This offer, however, is subject to the approval of Taro Board and
such other authorities as may be required and subject to completion of necessary
compliances/formalities as may be required.
Sun currently holds a 66.3% equity stake (with 77% voting rights) in Taro with a total
investment of US$260m till date (the company bought a 9.4% stake from Brandes
Investments Partners on 19 February 2008 for US$38m (valued at US$10.24/share) and a
12% stake from Templeton Asset Management on 1 November 2010 for US$82m (valued at
US$16/ share).
With Taro reporting US$106m of PAT in the last four quarters, Sun's offer values Taro at
US$1bn (at 7.25x EV/EBITDA and 10x PE).
While the offer seems lucrative for Sun, there are some hurdles
However, this has been objected by Grand Slam Master Fund, LTD (Grand Slam) which has
expressed its dissatisfaction with the offer by Sun Pharma as 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 the shares.
The fund believes a fair offer would be at a minimum of US$48.5 per share (which would be
valued at ~15x EV/EBITDA and ~20x PE) based on the deals happened in the past ranging
from 15x EBITDA on the low end to 24x on the upper end of the range.
Thus the fund believes that Sun's offer is at a healthy discount to the EV/EBITDA of Taro's
competitors despite the fact that Taro is growing more quickly and has higher margins than
these companies.
We expect more value-accretive deals
Sun made eight acquisitions in 1996-2001, but has made fewer since. The company raised
US$350m in 2004 to fuel further growth and made a few small acquisitions. However, we
believe, it could make no large acquisitions because of expensive valuations.
Sun acquired a controlling stake in Taro in September 2010 after three years of litigation. In
June 2011, it has acquired the 24.5% of Caraco that it did not previously own for US$46.8m
(or US$5.25/share), and now owns 100% of Caraco.
We believe Sun is now well positioned to make value-accretive deals, despite the ongoing
global slowdown, as the company has US$1bn in cash and cash equivalents.
Structurally well positioned; maintain Buy
Sun looks structurally well positioned for growth, as 83% of its revenues are from the US
(benefiting from a robust ANDA pipeline, improvement in Taro and a depreciating INR) and
India (above industry growth). Moreover, with US$1bn in cash, Sun looks well poised to
achieve value-accretive deals.
We value Sun’s core business at Rs518 (20.9x FY13F, at a 10% premium to the sector) and
one-offs at Rs7 (after a 20% execution discount) resulting in an SOTP-based TP of Rs525.
maintain Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sun's offer to buyout remaining stake in Taro at US$ 24.5/share valuing Taro at US$1bn (valued
at 7.25x EV/EBITDA and 10x PE) is a positive in our view. Sun holds 66.3% stake in Taro at a
total investment of US$ 260m. We expect more value-accretive deals as Sun holds US$1bn in
cash and cash equivalents.
Sun offers to buyout remaining 33.7% stake in Taro - a positive
Sun Pharma has proposed to acquire all outstanding shares of Taro Pharma (Sun's
subsidiary) for a per share consideration of US$24.50 in cash representing a 26% premium
over the 17 October 2011 closing price of US$19.45 (post the offer, Taro's stock closed 23%
higher at US$24/share). This offer, however, is subject to the approval of Taro Board and
such other authorities as may be required and subject to completion of necessary
compliances/formalities as may be required.
Sun currently holds a 66.3% equity stake (with 77% voting rights) in Taro with a total
investment of US$260m till date (the company bought a 9.4% stake from Brandes
Investments Partners on 19 February 2008 for US$38m (valued at US$10.24/share) and a
12% stake from Templeton Asset Management on 1 November 2010 for US$82m (valued at
US$16/ share).
With Taro reporting US$106m of PAT in the last four quarters, Sun's offer values Taro at
US$1bn (at 7.25x EV/EBITDA and 10x PE).
While the offer seems lucrative for Sun, there are some hurdles
However, this has been objected by Grand Slam Master Fund, LTD (Grand Slam) which has
expressed its dissatisfaction with the offer by Sun Pharma as 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 the shares.
The fund believes a fair offer would be at a minimum of US$48.5 per share (which would be
valued at ~15x EV/EBITDA and ~20x PE) based on the deals happened in the past ranging
from 15x EBITDA on the low end to 24x on the upper end of the range.
Thus the fund believes that Sun's offer is at a healthy discount to the EV/EBITDA of Taro's
competitors despite the fact that Taro is growing more quickly and has higher margins than
these companies.
We expect more value-accretive deals
Sun made eight acquisitions in 1996-2001, but has made fewer since. The company raised
US$350m in 2004 to fuel further growth and made a few small acquisitions. However, we
believe, it could make no large acquisitions because of expensive valuations.
Sun acquired a controlling stake in Taro in September 2010 after three years of litigation. In
June 2011, it has acquired the 24.5% of Caraco that it did not previously own for US$46.8m
(or US$5.25/share), and now owns 100% of Caraco.
We believe Sun is now well positioned to make value-accretive deals, despite the ongoing
global slowdown, as the company has US$1bn in cash and cash equivalents.
Structurally well positioned; maintain Buy
Sun looks structurally well positioned for growth, as 83% of its revenues are from the US
(benefiting from a robust ANDA pipeline, improvement in Taro and a depreciating INR) and
India (above industry growth). Moreover, with US$1bn in cash, Sun looks well poised to
achieve value-accretive deals.
We value Sun’s core business at Rs518 (20.9x FY13F, at a 10% premium to the sector) and
one-offs at Rs7 (after a 20% execution discount) resulting in an SOTP-based TP of Rs525.
maintain Buy.
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