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Disclosure: Long Taro.
Here is Q2 Whale wisdom 13F filings- link
As Taro continues to deliver on adding shareholder value, funds have significantly increased their stake. After >120% increase in share price from last year, Taro in June 2014 announced significant price hikes; This, in my opinion, is a signal that the board is continuing its intent on building value for ALL shareholders (as it should be; all shareholders are the owners). Taro's cash at the end of Q2 was ~$650m, expected to grow significantly in the 2nd half. In SUN's Aug 13th earnings call, Mr Shanghvi responding to an analyst question on the use of Taro's $650m cash said "Taro continues to look at potential acquisition opportunities. But we will remain disciplined about acquisition like we have been in SUN also. It needs to make long term business sense in terms of yield expectation post-synergy". This can be listened to between 27-30 min into the call. (I like Taro to lower risk profile and grow inorganically. I would like them look at specialty assets beyond just Derma, for example, an Opthalmology asset like Opthotech.)
- Consonance founder Mr. Blutt, a physician-businessman was a board member and part of the Corp Governance committee at Questcor.
- Perceptive Advisors in a dissidence vote successfully changed the entire Board at Penwest Pharma in 2010
- While Bluemountain reduced its holdings, we have seen Schroder, Consonance, Perceptive, Hotchkis, Renaissance and Acadian all buy into Taro. Together the top 10 hold greater than 4 million shares (30%) out of 13.33 million minority/float shares. This is a significant development as Israel provides minority shareholders significant voice and protections including a vote on the 2 independent director seats. There is a suit by Blue mountain and Iszo capital in Israel challenging the last proxy vote for independent director election. Please note that the margin of defeat for minority nominees wasn't wide. Here is Bluemountain's request for investigation of the proxy vote. Note that ALL current members of the Board are nominees from majority.
- Consonance capital's founder Mitchell Blutt is a physician businessman with significant investment and medical experience and had served on the board and the corporate governance committee of Questcor. As a shareholder, I would like to see such experienced minds contribute ideas (even if, passively) and help take our company to new heights.
- Joseph Edelman leads Perceptive Advisors and since 1999 the fund has returned an annualized 30.2%. Last year, the fund returned about 48%. Edelman works with six biotech analysts
- In addition, other green shoots can be seen in the Q2 13F filings. Taro is finally starting to be noticed by the most ubiquitous mutual funds of America namely the Dimensional fund advisors, Janus Capital, etc. This is great for the long term as these big mutual funds make the market in most of the listed stocks in blue chip companies.
Credit Suisse's Mumbai-based analyst recently in coming up with $150 price target has made the following assumptions:
- Taken into account only half of the $300m expected EBITDA increase due to the June price hikes.
- Used 9 times EBITDA in valuing Taro (The Agila transaction that closed in Dec 2013 happened at 18.6 times EBITDA)
- ROW market potential and Novexatin ($6b Onychomycosis NDA opportunity) have no mention in the report.
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