Why Shares of Taro Pharmaceutical Are Rising Tuesday

What happened

Shares of Taro Pharmaceutical Industries (NYSE:TARO) were up more than 23% Tuesday morning after the company reported late Friday that in a Securities and Exchange Commission (SEC) filing, it was looking at a buyout offer from Sun Pharmaceuticals, India's largest drugmaker.

So what

Sun Pharmaceuticals already owns 78.5% of Taro's shares and now plans to buy the remaining 21.5% of the company's shares at $38 a share, at a premium of 31.2% over the stock's closing price of $28.97 on May 25. The deal would be worth $307 million.

Taro's directors, in a filing with the SEC, pushed for the move, saying that it would benefit all shareholders of Taro. After the deal, Taro would become a wholly owned subsidiary of Sun Pharmaceutical. Taro said it was appointing a special independent committee of directors to consider the offer.

Now what

Taro is a biopharmaceutical company that makes generic, branded prescription and over-the-counter (OTC) pharmaceutical products. The healthcare company reported fourth-quarter earnings on May 23. In the quarter, the company said it had revenue of $146.6 million, up 2.3% year over year, and net income of $6.9 million, or $0.18 in earnings per share (EPS), compared to $27.4 million, or $0.73 in EPS in the same period a year ago. The company also reported it had $31.8 million in cash.

Prior to the buyout proposal, the Israeli company's stock had been down 20% to start the year. Taro's share price is down 80% from its 2015 peak.

SunPharma is coming off a strong fourth quarter, with revenue up by 16%, year over year. The purchase would be accretive to the company's bottom line, SunPharma said.

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Jim Halley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.