BlueMountain Capital Management and IsZo Capital To Update Shareholders Regarding Lawsuit Against Taro Pharmaceutical Industries, Call for the Resignation of External Directors

Jan 31, 2014, 19:04 ET from BlueMountain Capital Management, LLC

NEW YORK, Jan. 31, 2014 /PRNewswire/ -- BlueMountain Capital Management, LLC ("BlueMountain") and IsZo Capital LP ("IsZo"), two of the largest minority shareholders of Taro Pharmaceutical Industries Ltd. (NYSE:  TARO; "Taro"), are today updating fellow shareholders regarding the status of their litigation against Taro and calling for the immediate resignation of Taro's illegitimately elected external directors. 

On November 19, 2013, BlueMountain and IsZo filed a lawsuit against Taro in the Israeli District Court for the Central District alleging breaches of Israeli law by Taro in connection with the general meeting of Taro's shareholders held on September 12, 2013 (the "General Meeting").  Specifically, BlueMountain and IsZo asked the court to revoke the following resolutions passed at the General Meeting: (i) the resolution reelecting the external directors of Taro (Issue 7 on the agenda of the General Meeting); (ii) the resolutions approving compensation of officers of Taro (Issues 3, 4, 5 on the agenda of the General Meeting); and (iii) the resolution approving Taro's compensation policy (Issue 1 on the agenda of the General Meeting).

Among other issues, BlueMountain and IsZo alleged that voting was conducted using defective voting cards and voting instruction forms, in which the shareholders participating in the vote were not required to disclose the existence (or non-existence) of a personal interest in the adoption of the resolutions, as required by Israeli law. BlueMountain alerted Taro of the fundamental flaws prior to and during the General Meeting.

On December 25, 2013, the court set a trial date of March 16, 2014.  On January 23, 2014, Taro issued a press release announcing a new Extraordinary General Meeting of Shareholders to be held on March 27, 2014.  According to Taro, this meeting is necessary because "[f]ollowing the 2013 [General Meeting], the Company has learned that voting forms used by certain shareholders, which were not prepared by the Company, may not have informed the shareholders of their obligation to inform the Company if they are controlling shareholders or if they have a personal interest in these resolutions, and is therefore calling the Meeting for the purpose of having these resolutions ratified."  At the Extraordinary General Meeting, Taro intends to ask shareholders to again approve the same resolutions that BlueMountain and IsZo are challenging in our lawsuit.

Following Taro's announcement, BlueMountain and IsZo filed a motion with the court explaining our belief that calling the Extraordinary General Meeting is an admission by Taro that the voting process was materially flawed.

On January 27, 2014, Taro filed a motion seeking the dismissal of our lawsuit, claiming that in calling the Extraordinary General Meeting, Taro has agreed to all of the remedies that we sought in our lawsuit.

In light of these events, BlueMountain and IsZo wish to communicate the following to our fellow minority shareholders:

  1. We are gratified that, after months of denial, Taro has both recognized the existence of serious deficiencies in the voting process and concluded that most of the resolutions adopted at the General Meeting must be set aside. However, we are deeply concerned that the same flawed process may be repeated at the Extraordinary General Meeting.  On January 29, 2013, BlueMountain sent a letter to Taro demanding that Taro disclose the exact manner in which it is planning to conduct the Extraordinary General Meeting.  In the absence of a commitment by Taro to rectify all of the other material flaws in the voting process, we fear that the decision to call an Extraordinary General Meeting is designed to avoid a full adjudication of the claims made by BlueMountain and IsZo. Moreover, we note that under Israeli law, until such time as two external directors are validly elected, Taro's board is not legally compliant. 
  2. We are concerned that Taro's external directors, Ilana Avidov Mor and Dan Biran, have not taken the necessary steps to ensure that Taro acted in a lawful manner and protected the rights of minority shareholders.  As external directors, this is one of their explicit duties under Israel law.  They cannot claim they were unaware of the deficiencies in the voting process, as BlueMountain notified Taro repeatedly in public and private communications.  We fear that this disregard for the rights of minority shareholders is unlikely to change in the immediate future. Therefore, we strongly believe that Taro's external directors should immediately resign from office as their actions are incompatible with their duty to protect the interests of all shareholders. Their three year term as external directors expired in December 2013 and they have not been legitimately re-elected.  In light of their repeated failure to perform their duties, we believe they have personal accountability under Israeli law, and we are evaluating our rights to pursue this remedy.  
  3. In our opinion, Taro's statement in its press release of January 23, 2014 that "[f]ollowing the 2013 AGM, the Company has learned that voting forms used by certain shareholders, which were not prepared by the Company, may not have informed the shareholders of their obligation to inform the Company if they are controlling shareholders or if they have a personal interest in these resolutions…" is incorrect and misleading.  As stated above, BlueMountain repeatedly informed Taro of flaws in its voting instruction forms prior to the General Meeting.  Thus, it is clear that: (1) Taro should have been aware of these flaws; (2) the voting instruction forms did not include the required shareholder declaration regarding the shareholder's personal interest in the resolutions (this is in contrast to Taro's claim in its press release that the voter information cards "may not have informed the shareholders of" their obligation to make this declaration); and (3) neither the voting instruction forms nor Taro's Proxy Statement explained to shareholders that any indirect interest with respect to such resolutions, such as the existence of business ties or any other relationship of a shareholder or any person voting on his or her behalf with Taro or its controlling shareholder, are deemed to create a personal interest.  
  4. Following demands by BlueMountain and IsZo, Taro provided BlueMountain and IsZo with a copy of the minutes of the General Meeting, which are part of this press release as Exhibit A (the "Minutes") and can be accessed at .  BlueMountain believes that the Minutes are deficient because they include no record whatsoever of any of the issues and concerns raised by BlueMountain's representative at the General Meeting, which should have been explicitly reflected in the Minutes. Moreover, we fail to understand why it took Taro over 3 months after the meeting to produce such minutes to BlueMountain and IsZo, without any reasonable explanation for the undue delay.  In Israel, the detailed results of the general meeting are typically available no later than the next business day following the meeting, and the minutes of the meeting are available shortly thereafter.  The Minutes of the General Meeting contained the following summary of the voting results for non-controlling shares:

    Non Controlling Shares Voting:






    For - Against


    Taro Compensation Policy





    Remuneration for Mr. Dilip







    Remuneration for Mr. Sudhir







    Remuneration for Mr.


    Subramanian Kalyanasundaram





    Re-election of Ms. Ilana Avidov


    Mor as External Director





    Re-election of Mr. Dan Biran as


    External Director





    Election of Mr. Ben-Ami


    Rosenfeld as External Director





    Election of Ms. Adi Bershadsky as


    External Director





    Note: Non-controlling shares voting against for Resolutions 13 and 14 assumed to be total shares voted against less controlling shares implied in resolution 1 of 52,046,376; see Minutes for detail

  5. In its January 23, 2014 press release, Taro noted, "the Company has not received any evidence to indicate that any votes were improperly included of controlling shareholders or shareholders who had a personal interest in these resolutions."  Given that Taro has acknowledged that the voting instruction forms were not properly marked, we believe that Taro cannot reliably know whether shareholders who had a personal interest voted improperly.
  6. Our skepticism on this matter is further fueled by the election results.  Importantly, the margin of victory for the incumbent external directors was very close at less than 1.6 million votes (see table above Items 11 and 12).  We believe BlueMountain's nominees had nearly unanimous support amongst Taro's largest minority shareholders known to us.  That suggests a high percentage of smaller shareholders would have had to have voted for the re-election of the external directors.  We believe that it is exceedingly rare that high percentages of smaller shareholders vote, and rarer that they vote in such uniform fashion.   
  7. In addition to the concerns expressed in Item 6, we note that that there is an inconsistency in the voting results as reported for Resolution 8.  In every other item requiring the vote of the Controlling Shareholder Sun Pharmaceutical Industries Ltd. ("Sun"), the votes of Sun totaled 52,046,376 by subtracting the votes of non-controlling shareholders voting "for" from the total votes voting "for", which to the best of our knowledge is the correct as-converted ownership of the Controlling Shareholder at the time of the vote.  However in Resolution 8, the Controlling Shareholder apparently voted 53,046,376 shares.  In light of Taro's acknowledgement of irregularities in the voting process and the fact that it had three months to prepare this relatively basic information, we believe this also calls into question the integrity of the voting results in the Minutes.
  8. On December 23, 2013 Taro announced that it had successfully tendered for approximately 1.96 million minority shares.  As the voting table above from the Minutes demonstrates, the margin of victory of the existing external directors was less than 1.6 million shares.  In addition, the margin of loss of the BlueMountain candidates Mr. Ben-Ami Rosenfeld and Ms. Adi Bershadsky was less than 1.0 million shares (see table above Items 13 and 14).  With fewer minority shares outstanding after the tender, we believe that the minority position is potentially even stronger than it was at the September 2013 shareholder vote.  Each minority vote is incredibly valuable. Minority shareholders have been successful in thwarting multiple attempts to shift substantial value to Taro's majority shareholder in the past.  We urge all minority shareholders to retain their right to vote in the event that an Extraordinary General Meeting is held in March. 

We continue to believe there is very significant value to be created for all shareholders of Taro, and remain focused on ensuring that this value creation accrues to all shareholders.   In the interim, we are committed to exercising our rights as shareholders through all available channels.


BlueMountain Capital Management

IsZo Capital Management  

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SOURCE BlueMountain Capital Management, LLC