P.T. Jyothi Datta

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Mumbai, June 10 June is likely to be an important month in the now public spat between Sun Pharma and Israeli drug-maker Taro, after the latter unilaterally terminated Sun’s $454-million proposal to acquire it.

Sun Pharma will have to take a call on acquiring the stake of Taro’s promoters within 30 days of the termination of the agreement (May 28), if it indeed does decide to pursue this option, say industry watchers.

Sun Pharma has 3.7 million warrants that it can exercise at $6 a share, besides the option to buy promoters’ stake within 30 days from the termination of the agreement at $7.75 per share, said Mr Neelkanth Mishra, a Research Analyst with Credit Suisse, explaining the options before Sun Pharma

This will take Sun Pharma’s economic share to 52 per cent and voting share to 68 per cent. And if Sun Pharma exercises the option, it must also commence a tender offer for the remaining shares (likely to be at $10.25 a share), a note from the analyst added.

The Sun Pharma-Taro deal, touted to be the second largest overseas buy in the pharma space, was called off last month by Taro, saying that its board had found the revised conditional offer of $10.25 a share “financially inadequate”. Sun Pharma, on its part, has maintained that Taro is not entitled to terminate the agreement.

But whether Sun Pharma will be forced to exercise its option (of buying Taro promoters’ shares) is debatable, as, the Mumbai-based drug company does not recognise Taro’s termination of the agreement.

Sun would have been forced to take a call within 30 days, if the termination had taken place within the frame-work of the agreement as Sun sees it, the official said. This means, the tussle is headed for a legal wrangle that could be played out in a third location like New York (where Taro is listed), and not India or Israel, the industry official observed.

But then again, it is not in Sun’s interest to be stuck in a protracted litigation, observes Mr Akil Hirani, Managing Partner of international law firm Majmudar & Co, adding that the companies would seek to work towards a settlement.

Both companies would have worked a termination clause into the agreements, he indicated. “Typically, cross-border contracts provide for arbitration outside India. Therefore, my sense is that the parties will go in for arbitration.

If there is no arbitration clause, then the parties may have provided for a jurisdiction clause, so that only courts in a particular city can try litigation disputes between the parties. In the absence of any jurisdiction clause, litigation may ensue either in Israel or India,” he said.

Sun Pharma shares closed marginally down at Rs 1,470.60 on the BSE on Tuesday.

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