Sun Pharmaceutical Industries’ planned $454-million acquisition of Taro has collapsed, a year after the deal had been announced, after the Israeli firm decided that the cash on the table was not enough.

On May 18, 2007, the Indian drugmaker announced that its $7.75 per share offer for Taro had been accepted but the period since then has been filled with failed attempts to actually conclude the deal. Sun later upped its offer to $10.25 but Taro’s board says this is “financially inadequate”.

In a letter explaining the decision to terminate the deal to his counterpart at Sun, Dilip Shanghvi, Taro chairman Barrie Levitt says that when the merger agreement was signed last year “ we were both surprised at the intensity of the objections raised publicly” by minority shareholders Templeton and Brandes, “but that is history”. Continuing that deal “no longer makes sense and has created operational constraints that are interfering with Taro's ability to manage its business”, he added.

As for the increased offer, $10.25 per share does not take into account the fact that “Taro has experienced a dramatic return to profitability and has brought or is about to bring to market a significant number of new and promising products”, Mr Leavitt said. Also the firm’s financial advisor, Merrill Lynch, says that the Sun offer falls short.

Mr Leavitt’s letter ends by saying: “I regret that Sun refused our request” to permit the firms' respective financial advisors to meet to discuss Taro's value “and attempt to resolve our differences. We are prepared to engage in such discussions, should you change your view”. However he adds by saying that “since you apparently do not agree with the value we see in Taro's future, we would be prepared to use our best efforts to attempt to arrange for the purchase of your shares by a third party” at the $10.25 per share price.

Sun, which has made equity investments in Taro worth $59 million since the deal was first announced, has yet to respond in full and limited itself to noting that it had received notice from the Israeli group.