Sun Pharma To Get Earnings Boost From Taro Acquisition, Say Analysts

Sun Pharma already owns 78.5% share in Taro and has made an offer to acquire the remaining 31.5%.

<div class="paragraphs"><p>Source: Unsplash</p></div>
Source: Unsplash

Sun Pharmaceuticals Industries Ltd.'s plan to acquire the outstanding shares of Taro Pharmaceutical Industries Ltd. from the public on May 27 is earnings accretive, according to analysts.

The Indian drugmaker owns 78.5% of the existing share capital of Taro, making it a subsidiary. It has now put forth an offer to acquire the remaining 21.5%, or roughly 81 lakh shares, owned by the general public for $38 per share.

The price, the company said in an exchange filing, represents a "premium of 31.2% over Taro's closing price on May 25, a 41.5% premium over Taro's average closing price in the last 60 days, and a compelling liquidity opportunity for Taro's shareholders".

Accordingly, if the transaction were to go through, the company would spend around $307 million in cash, after which Taro would become a wholly owned subsidiary of the company.

Taro has current assets of $1.3 billion, of which cash and short-term bank deposits total $274 million.

"Post acquisition, Sun Pharma will have complete autonomy to utilise $1.3 billion. This is while attributing Taro an enterprise value of around $1.4 billion, which is reasonable. So, overall, it is an accretive transaction," Abdulkader Puranwala, a pharma analyst with Elara Capital, told BQ Prime.

Currently, Sun Pharma can use Taro's cash only for the latter's business because of its minority shareholding, said Vishal Manchanda, a pharma analyst with Systematix Corporate Services Ltd. However, with the complete acquisition, Sun Pharma would be able to utilise the cash on Taro's balance sheet and put it to the best use for the group as a whole, he said.

"Also, Sun Pharma's track record with acquisitions and deals has been good. So overall, this seems to be a good proposition for the company," Manchanda said.

The company also announced its results on Friday, which were in line with street estimates.

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Shares of the company fell as much as 2.46% on Monday before paring losses to trade 0.4% lower as of 1:36 p.m., compared to a 0.64% rise in the benchmark BSE Sensex.