A former investor in Taro Pharmaceutical Industries claims that the price that Sun Pharmaceutical Industries paid to acquire the Hawthorne generic drugmaker was based on misleading information.
Neal A. Mitchell, of Danville, California, filed a class action lawsuit against Sun Pharma, Taro Pharma, and former Taro board members in U.S. District Court, White Plains, on Sept. 9.
“While defendants touted the fairness of the merger,” the complaint states, “they failed to disclose material information that is necessary for stockholders to properly assess the fairness of the transaction.”
Taro was an Israeli company that made off-patent drugs for the U.S., Canada and Israel markets. Its U.S. operations are based in Hawthorne.
Sun Pharma, based in Mumbai, India, also makes generic drugs.
Taro merged with Sun this past May, was delisted on the New York Stock Exchange, and became a privately-held company.
Before the merger, Sun and its affiliates already owned about 86% of Taro’s outstanding shares. Minority shareholders controlled about 7.8 million shares.
Last January, Taro and Sun announced the proposed merger.
Their press release stated that Sun’s offer of $43 per share represented a 48% premium over the $28.97 closing price on May 25, 2023, just before Sun proposed the buyout, and 13% more than a previous offer.
A committee appointed by Taro’s board of directors unanimously approved the offer, based in part on a financial analysis by BofA Securities Inc.
The committee, according to the press release, “determined that the merger agreement and the per share merger consideration are fair and in the best interests of Taro and its minority shareholders.”
Taro filed a proxy with the U.S. Securities and Exchange Commission on April 15, urging shareholders to vote for the merger.
Shareholders approved the deal on May 22.
Mitchell claims that BofA Securities’ valuation analysis, as described in the proxy, was incomplete and misleading. The proxy allegedly overstated the cost of capital, for instance, and downplayed the savings of going private.
The defendants were obligated to carefully review the proxy to ensure its accuracy, before filing it with the SEC, the complaint states, so shareholders could cast informed votes.
Taro executives were intimately involved in negotiating, reviewing and approving the merger, the complaint states. They were directly involved in Taro’s day-to-day  operations. They were privy to BofA Securities’ methodology and key assumptions.
Yet, he argues, they were negligent in failing to disclose critical information, or negligent in not knowing that the proxy was misleading.
Mitchell does not say what he thinks the share price should have been, or how much he and other shareholders were allegedly undercompensated.
He is demanding unspecified monetary damages, on behalf of himself and other former shareholders.
A Sun Pharma spokesperson based in Mumbai did not reply to an email asking for the company’s side of the story.
