Taro: Sun Pharma terminates the buyout pursuit

Today Sun Pharma and Taro announced the termination of the buyout pursuit. This is great news for Taro holders. I always left a small chance that Taro could stay as a public company, similar to what happened with Caraco. The biggest reason for this is the valuation for Taro Pharma has moved up very rapidly. Sun initially bought its stake in Taro at $6 something. If it wants to acquire the rest of Taro, it is likely going to have to pay over $60. That is a 10x the initial valuation, a steep price for someone that is very price conscious.

So what happens next? I think we will slowly see Taro’s share price adjust to its fair valuation, which I think is around $80+. Investors will initially be skeptical as there is still a chance that Sun Pharma might make another offer to buy out rest of Taro. With time that fear should recede.

The question for Taro is what happens with their cash hoard. The company has $480M of cash, with little debt. The company is making around $80-100M of cash per quarter. So the cash position will keep increasing, with no real need for the capital. I would love to see Taro using the cash for buybacks (low chance) or acquisitions. I think acquisitions is more likely. If Taro stays public, it could easily double in 2013.

2 responses to “Taro: Sun Pharma terminates the buyout pursuit”

  1. Do you truly believe fair value is near $80, if taro is opened up for sale and Indian generic pharma companies like Glenmark, Dr. Reddy’s, and US competitors are allowed to bid for it. I believe it is much north of that price you have. Dermatology/topic stuff is somewhat niche.

    • The scenario where there would be an open auction is never going to happen. Sun would never let that happen. So there is no sense in talking about valuation that other companies would give to Taro. Sun owns majority of Taro, and they are the only buyer for Taro.

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