The hostilities between Sun Pharmaceutical Industries and Taro that stem from the latter’s recent decision to terminate their planned merger are likely to become more intense now that the Indian drugmaker is planning a hostile takeover.

At the end of last month, Taro, which is headquartered in Israel, pulled out of the $454-million merger agreement with Sun. On May 18, 2007, the latter’s $7.75 per share offer had been accepted but since then attempts to actually conclude the deal failed. Sun later upped its offer to $10.25 but Taro’s board says this is “financially inadequate”.

There followed an exchange of angry letters about whether Taro had the right to terminate the deal and Sun has now taking decisive action. It says that in the event the merger was not consummated, Taro granted Sun an option to acquire all its shares and that agreement requires that the Mumbai-based firm
“specifically commence” its tender offer at the original $7.75 per share, a significant discount on its trading price of late.

As part of the dispute, Sun has filed an action in the Supreme Court of the State of New York against Taro and its board of directors, requesting the court to order the controlling shareholders to honour the initial merger agreement.

The firms are already been involved in a legal battle over the sale of Taro’s Irish plant. In that case, Sun, which is still Taro’s largest shareholder, says that the agreement reached with a particular buyer “significantly undervalues the entire facility, even if one were to take into account only the existing asset base and ignore any future growth potential".

Back to the hostile bid and Sun chairman Dilip Shanghvi says “we have had enough of the delays, excuses and misrepresentation by the board of Taro and Dr Levitt”. He added that “in good faith”, the firm complied with its obligations under the merger agreement and “now it is time for Dr Levitt and his family to do what is required of them”. Mr Shangvi concluded by saying “we will do everything required to preserve our rights.”