How do we know that Taro does not have an honest management?
Simple! Sun has Sun for its management and Taro has Sun for its management. Both companies have the same management. Yet, that same management is managing those two companies by two different sets of business practices. One that let Sun grow and therefore Sun trades at a P/E ratio which is in the thirties and the other one which depresses Taro’s growth and therefore Taro is traded at P/E=12. Taro management, up to the previous year, avoided any conference call in order to avoid answering investors questions, and then they figured that they can use the platform of a conference call for trashing Taro’s stock and yet not give any material answer (“we’ll have to get back to you”) or give hypocritical answers (“Taro does not buy because currently assets are overpriced,” yet Sun was on a buying spree for the last few years.)
According to the above rational, we’ve established that Taro’s management is dishonest. Yet Taro’s management is not an abstract entity- It is made of real people. So who made Taro’s management to be dishonest? The people at the top of that management made it dishonest! Namely: Dilip Shanghvi, Kal and Kalb!
Yet we don’t expect dishonest people to fire themselves for being dishonest. May be certain activity by minority will correct this travesty.
Yes, Taro’s numbers may be good or may be bad, but, unlike any other company, good financial facts are not as relevant to Taro’s stock appreciation as the mistrust of the market in Sun-Taro’s management and the market’s perception that Taro’s share is being manipulated.
If you read the recent articles about Taro in Seeking Alpha you’ll realize how deep and wide spread is the mistrust of investors in Sun-Taro’s management. In fact, Sun-Taro management is the single biggest impediment to Taro’s stock price. In the game Sun-Taro vs. Taro’s minority, Sun-Taro is holding almost all the cards but not card of being drugged to court by the minority. And eventually Shanghvi, Kal, Kalb and others will have to answer in a court of law. Until then, Sun-Taro will continue to press the profit-gas pedal while at the same time pressing the stock-price-brake pedal.
By the same token – in the last Conference call, Shanghvi-Kal promised Brian Sheehy of ISZO to answer his question regarding ‘European market harmonization’ and also to publish the answer on Taro’s site. I checked a few time – Could not find anything about this matter. Did any one of you know better ?
you are right, but I am not talking about external directors who are paid small and insignificant fee ( relative to the others). I am talking about internal directors , like Kal, Kalb and others, who actually run Taro. If their compensation packages depend on Taro's share price, then: on one side - they may resist Dilip's order will harm Taro's share price because that may be detrimental to their own compensations. On the other side- Dilip, knowing that the board may resist him, will think twice before submitting any "suggestions that might screw minority". It is good to align the directors' interest with the minority's interest.
A few years ago Taro established a compensation policy for its directors (remember the proxy?) As far as I remember, there were about 7-10 criteria determining compensation. The Share price criterion was near the bottom of the list. Under current policy, directors are not encouraged to speak out against business strategy that serves Sun, to the detriment of Taro’s directors and the minority. Also, if compensations are tied to market performance, this is a better chance of whistle-blowing.
I think this is one issue minority should harp on.
Directors should be able to make more money when shareholders make more money, and vice versa!
Recently, 3-4 time I tried to post, and my posts showed for a few seconds ( and even a minute or two) and than there were deleted.
There was no profanity, there were not too long. there were just uncomplimentary to Suntaro managemwnt.
Did it happen to you ? did you figure why ?
"That possibly the reason there is no institutional interest in Taro as they to not believe the management." my theory is that since mistrust serves Sun, mistrust is not the by-product of the actions or in-actions Sun-Taro's management takes. I believe that Sun-Taro is creating and nurturing the mistrust by intention, for self-serving reasons. I often call it "mistrust by design".
Tomcom: “it sounded to me like Kal had never even heard of this legislation before.” Cynically (I think,) this sentence gives Kal “the benefit of innocent dereliction” (two and a half years after the “EU-Israel- pharmaceutical-pact” was approved and yet Kal “cannot predict….”). Great Sentence!
you are basically right. Six months ago he answered the private investor:
"...So what remains is only Europe. We will continue to evaluate opportunities in Europe."
Now, six months later and without a shame "he is still evaluating" . Probably he learned this kind of answer from "prof." Pekelman who was "still evaluating " the $24.5 offer for about 9 months.
From the transcript of Taro’s conference call On May 28, 2015
Brian Sheehy - ISO Capital - Analyst : “… What's your plans to monetize the Israeli EU patent harmonization legislation that passed a couple of years ago?”
Kal Sundaram - Taro Pharmaceutical Industries Ltd. – CEO: “ ... maybe what we say I need to get an update and then come back to you. What I also will tell you we put it in our website”
(1) So many years to evaluate the European’s opportunities and yet Kal, our fearless CEO, does not have the answer at hand. One possible explanation is that Sun-Taro never had the intentions to market its products in the European Union (that will probably be done only after Sun owns %100 of Taro) because (1) that might have pushed Taro’s stock higher which is contrary to Sun’s interest. (2) Such a move (marketing in Europe) may have restored some trust in Sun-Taro’s management, which, is probably not in Sun-Taro’s interest.
(2) Kal promised to Brian Sheehy “What I also will tell you we put it in our website” –Today, 15 days after the CC I could not find any answer to this question on Taro’s website. Did anybody see an answer to this question on Taro’s website?
This is positive for Taro. But we know that Taro's profit is not a problem.
The problem is , why growing profits do not translate into a higher price in spite of Taro's depressed value? and the question is: are there forces out there that manipulate the price down for a self-serving reason?
Does the Nomura guy has a price target for Taro.
Can you give a snippet from the Numora report, so we can Google it ?
Taro’s share has been depressed for at least 9 months in spite of great performance by Taro.
Taro’s cash growing very nicely regardless of Taro’s SP.
Yes, and even better (for them.)
Consider the following #$%$umptions: If Taro's stock will keep being depressed for whatever reason, around $140 for few (4-5) more quarters, Taro’s cash will be around $2b. Assume a buyback will raise Taro’s price to $155 and Sun’s ownership to %80 using only $400 of Taro’s cash (now Taro’s cash is back to $1.6B), minority now owns only about 8.4M shares. Then the same forces that had depressed Taro’s price go back to work and Taro’s share is back at $140 for 2-3 more quarters, now Taro’s cash is back to $2b or above. Now, Sun offers $200 a Taro share, %42 premium over market value – people sick and tired of Sun shenanigans tender their shares . It costs Sun $1.68B ($200*8.4M). Sun now owns Taro; it takes over $2B of Taro’s cash, netting to itself $332M (2B-1.68B). Sun not only paid nothing for owning Taro, but they made a profit of $332M in the process. Nice, ha? buy something for no money and even get paid for it!
A smart #$%$ might say that actually Sun owned %80 of Taro's cash, theoretically it is True, but as long as they don't own Taro, they can not lay a hand on this cash- practically this cash is not theirs. It become their money only after they own Taro.
The disappearance of 6 messages has nothing to do with Taro, it has to do with a person in this message board who often writes a message or responds to a message, leaves it there for about half an hour and then removes it . But this time while removing his own message he removed the rest of the thread, which included a message from you ( which I was planning to respond to, re: divestiture), BenzG, and a message from me explaining the Israeli Companies Law in response to BenzG's message. I think a person has the right to remove his own message when it stands by itself and cannot remove his own message if by this act he removes other people's messages
This message board allows the author of a post to remove his own post. This feature has been exploited for many times by someone here. I wonder whether the act if removal of the author reply, the following replies are also removed even though many times (like in this case) they don’t belong to that replier, and their content has nothing to do with the content of the remover top reply.
Did someone here intentionally remove his reply and the following replies even though some of them did not belong to him?
Ben, since your post is not comprehensive regarding this matter, I looked up, again, The Israeli Companies Law regarding this matter. Here is my understanding of the Israeli law as it pertains to a possible buyout offer from Sun to Taro's Minority.
Sun can buy up to %90 of Taro, either by a buyback, or on the open market or directly from others investors. Once Sun owns %90 of Taro, by the means mentioned above, it can acquire the other %10 it does not own ONLYby submitting a full purchase offer. Now, if the majority of the minority (more than %5 of the %10) accepts the offer then Sun controls 95% or more of Taro, and those who refused to sell must submit their shares to Sun. However, if less than %5 agrees to accept the offer, then Sun cannot accept any of the shares, and it has to stay at no more than %90 of Taro’s shares. In other words, Sun has to have the acceptance of majority of the minority in order to consummate the offer – no way around this rule. As to your other point() appealing to court): It is true that any shareholder who was separated from his/her share Taro’s (forcefully or not) due to the purchase offer, has the right to appeal to court under a special procedure called “Appraisal right”, asking the court to rule that the purchase price was below the fair value. If the court rules in favor of the shareholder it also decides what would be a fair price, and the purchaser (Sun) will have to compensate to all shareholders involved by paying the difference between the “fair” and the unfair" price.
Yes, buyback reduces liquidity; but that is not the worst thing about ‘buyback.’
Buyback also snatches taro shares from minority with a little premium – which has a depressing affect on Taro’s SP, and this is also is not the worst thing about buyback.
The worse thing about buyback is that it paves the way for Sun to overcome the hurdle of “the majority of the minority”.
Since Sun and its stashes do not surrender any share in the buyback, all shares acquired at buyback are sucked out of minority. If, let say, Sun buys %10 of the minority’s shares, minority ownership goes from %30 to %20 and now majority of minority is only %10. Obviously, buyback raises the relative ownership of anyone who stays in the game. Now, there are total of 37.8M (42M-4.2M) Taro’s shares. Of which Sun owns %78. The stash at BBH now owns %10.5 (3.917M out of 37.8M) of Taro.
The BBH stash alone tips the “majority of minority” in favor of Sun. In such a case Sun can give any offer it wants for minority’ share and it will be accepted (remember the $39.5, an offer with a negative premium?) Since the stash “by magic” does anything expected of it by Sun.
Therefore, even before Shanghvi finishes spelling the word "buyback", ISZO CAPITAL MANAGEMENT and/or MATTHEWS INTERNATIONAL CAPITAL MANAGEMENT or any institution with the wherewithal should rush to the court to enjoin Sun from going ahead as long as the stash problem is not taken care of.
The clippers were given a one day vacation.
The trading pattern in Taro's stock of the last 8 months is alive and well and is back at work - Every rise in Taro’s stock meets its immediate clipping.
Did you expect a natural follow-up to yesterday upside’s momentum? Well, not when you are dealing with this bunch of management.
Do you need some more proves that the clippers work for the benefit of Sun?
Eventually, eyebrows will be raised at the SEC, or one of the Insty will sue, or Taro’s cheap price will whet the competition’s appetite.
Well, the truth is that it is impossible under reasonable offer to wrest Taro out of Sun’s grip. So why bother?
Because Sun is a serious competition to all of those companies and if a buyout offer is not accepted at list it weakens Sun Pharma!
The Idea is to exploit the law of "majority of Minority". Here is an example of a theoretical Scenario:
Teva, which stupidly forwent the opportunity to buy Taro and now is kicking itself in the head, can submit a hostile offer to buy Taro for $200/share. Sun, obviously refuses to sell claiming “Taro is not for sale, Teva’s offer undervalues Taro”. Teva raises its offer to $220 and announces that it is willing to buy directly all minority’s shares. Sun is shaking in its boots, with Teva owning a big chunk of the minority, Sun can never win the “majority of Minority” and is stuck with its nemesis which will make its life miserable.
Now, Sun can do one of three things:
(1) Sun buys Taro’s shares in the open market, but according to the Israeli law it cannot go above %90, and therefore it is stuck with “the majority of minority”. That will, probably, raise Taro’s share to $270 or more.
(2) Sun Offers to buyout all of minority shares at $260. - but they will not succeed because minority smells a price war.
(3) Sun Offers to buy Taro’s shares held by Teva (like they did with Mark Mubios of Franklin) at $320 – Teva refuses and ask for $360.
Under any any case Taro's share are now traded above $270!
What did Teva gain by such a move? It weakened Sun, the competitor - by raising Taro-share’s price, Sun will have to shell out twice the amount of what it intended to do. And if Teva bought Taro’s share, it can sell them back to Sun at a hefty premium.
The same scenario can work for a billionaire activist investor!
than the competition
Another plus is the new insty with 500k shares which is above %1 of total shares. This allows them to take an active role , such as nominating independent directors and other "privileges".