Even though Sun increased its offer from $7.75 to $10.25 per share, Taro’s board found this to undervalue the company.

Taro Pharmaceutical is axing its merger transaction with Sun Pharmaceutical worth $454 million. The unanimous vote against the May 18, 2007, deal stems from concerns that Taro’s current and future value is no longer reflected in the acquisition price.

Sun said that it would pay $7.75 per share in the initial agreement and recently even upped its bid to $10.25 per share. This was on the condition that the the voting threshold required by Israeli law to implement a merger be eliminated. Taro is currently trading at $8.30.

The board believes that the value of the deal, including the increased offer from Sun, does not reflect Taro’s financial turnaround over the past year. They add that the future value expected with changes in the business model and from its product pipeline were also not considered.

The board also reports that the operational constraints in the merger agreement were interfering with Taro’s ability to manage its business. If it wasn’t for some of these constraints, the firm’s profitability and cash resources could have been higher today, the directors note.

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