giofranchi

Allergan plc Confirms Discussions Regarding Potential Business Combination Transaction With Pfizer Inc. http://www.prnewswire.com/news-releases/allergan-plc-confirms-discussions-regarding-potential-business-combination-transaction-with-pfizer-inc-300168745.html Cheers, Gio

I've got some new cash this morning and I have just bought more. Cheers, Gio

Allergan Deal Could Take Pfizer Closer to Split, Move Abroad http://www.bloomberg.com/news/articles/2015-10-29/allergan-deal-could-take-pfizer-closer-to-split-up-move-abroad Cheers, Gio

Let’s see at the end of the year how much organic growth has been in 2015, and let’s wait for Leonard to comment on that result… I agree the last two quarters have not been very satisfactory, but overall growth is still good, and organic growth might fluctuate a lot. I think it is inevitable. Leonard will surely be able to shed more light on organic growth in 2015, and let us know how he sees that trend evolving. Cheers, Gio

Picasso, I understand some people like to be sarcastic for sarcasm’s sake… But you seem to know all the “gio threads”, while I don’t know any “Picasso thread”… So, are you criticizing without getting any exposure to criticism yourself? Do you think it is fair? ??? So, let’s do the following if you’d agree. You are very aware of what I look for: the best compromise between quality of business + quality of management and stock price I can find. Instead of sarcastically commenting my threads, won’t you let me know some ideas of yours? If you know businesses that are of a higher quality, led by more capable and more reliable operators, and which could be bought at more attractive prices, than the businesses I own right now, I will be very glad to take them into serious consideration. Believe me: I couldn’t care less they are your ideas, not mine. If you convince me your ideas are actually better, I’ll sell mine and buy yours without any problem. Cheers, Gio

The earnings stream is declining? By this you mean organic earnings growth is actually negative, I presume? In what quarter has that happened? You should be able to easily point to it if what you say is true, and why wouldn't it be true if you are saying it? This is what I have always said: as long as there is organic growth, no need to worry. If and when organic growth starts to falter, I’ll take notice. Cheers, Gio

By the way, I don’t agree with this either. Imo VRX basically is a business run by a very good value manager in the pharma and biotech sector. Not complicated at all. M&A has been his focus until now. A mix of M&A and R&D might be his focus going forward. Debt makes the situation a bit more complicated, as I have always admitted. But not much else. As far as I am concerned, the problem was the accusation of fraud. Period. Cheers, Gio

Not at all! But if you look at the businesses you have mentioned, most of them are not great businesses (GLRE, TPRE, BH). To focus more on the quality of the business is the lesson I have learnt, not to look for a cheaper price: I have made money in all three companies exactly because I paid a low price, even if they didn’t perform as I expected. I still hold PSH and I still think activist investing will do very fine, and Ackman is good at what he does. Not every year will be great, but that is to be expected. Isn’t it? As far as OAK is concerned, I still think your short thesis is wrong. Finally, I changed my mind about NHL because I thought it was still at the beginning and not proven yet. Liberty also made me think about compensation, and I agreed it was too egregious and not in line with shareholders’ interests. You might be very sophisticated in how you invest, and I am sure you achieve great results. But I don’t have to best you at all costs, right? It is not a competition for me. I run some businesses that luckily enough until now have generated good fcf, and I use that fcf to buy what I think are great businesses run by great entrepreneurs at attractive prices. Do I change my mind? Sure! If the quality of the business turns out to be lower than what I had thought, I change my mind. If the quality of management turns out to be different than what I had thought, I change my mind. If business results turn out to be not as good as I had thought, I change my mind. Will I beat the S&P500 this way? I cannot say… Probably not!... Let alone beating Picasso!! Ahah!!... But thinking about the businesses I own through the stock market is what I enjoy, and also helps me make better decisions for the businesses I manage on a daily basis. Therefore, I think it is worthwhile. Cheers, Gio

You've hit the nail on the head. Has anyone spoken to current/former VRX staff about Pearson? Has anyone spoken to Pearson's ex co-workers at McKinsey? If not, then saying "Pearson's a man of integrity" is just a whole lot of uninformed hand-waving. Show me the data. I have never spoken personally to Buffett nor Watsa. I simply have read all they have written, and listened to all they have said for many years now. And I have come to my conclusions. Idem with Pearson and other managers I have decided to invest with. But, as I have said, Pearson has not been so focused on his reputation as Buffett and Watsa have been instead… That’s why I have had some trouble with the fraud stuff. Cheers, Gio

M&A won’t go away. On the contrary a lot more companies will embrace it. Small, nimble, and very entrepreneurial biotech will do the bulk of R&D, while big companies will buy them, rewarding their successful job and improving and commercializing their products. Imo a high ROE needs entrepreneurial thinking to be sustained: you simply cannot point to Pfizer nor Merck and say: look, their ROE has gone done, so everyone else’s ROE must come down. Pfizer and Merck have simply grown too bureaucratic: either you do R&D or you do M&A (or a mix of both), you need a person focused on return on capital to sustain a high ROE. These are definitely NOT businesses that could be run by an idiot! Cheers, Gio

+1 Cheers, Gio

I agree. But in what I think will follow focusing on these differences will be later regarded as focusing on the tree instead of the forest… We will see! ;) Cheers, Gio

I believe the exact opposite instead: imo this century will be remembered as the century of biotechnology. Cheers, Gio

+1 And this is essentially why you must be very careful about reputation in business! I know it sounds strange said by me… I have invested a long time with Biglari… Saying over and over again that all I cared about were business results! But I make mistakes, lots of them… I want to recognize them, and hopefully correct them: I now believe reputation is paramount, because our economic system is basically based on trust. Cheers, Gio

I am opening a position in Gilead today. John Martin has done a wonderful job building GILD into the great company it is today. Though GILD is R&D based, they have bought 11 companies in the last 10 years, and established numerous partnerships with smaller biotech companies, showing they can grow inorganically too. Martin is only 63 and could be at the helm for at least another decade. During the last 5 years GILD stock price has increased 6x, and yesterday they have declared a 37% increase in sales… Yet, the stock is trading at 9.5x TTM adjusted EPS. Too cheap imo, even considering lots of products that might lose patent protection in the near future. I believe today’s price is a very good entry point. As always, I am leaving room to average down, should sales take a hit in the future. Cheers, Gio

+1 Cheers, Gio

I find slide n.74 of yesterday's presentation very funny! ;) Cheers, Gio

Does M&A Still Have a Future in Big Pharma? http://www.gurufocus.com/news/369832/does-ma-still-have-a-future-in-big-pharma Cheers, Gio

Ok. Thank you. Gio

OM, First of all yesterday presentation showed that sales at VRX are recorded properly. That was important for me. Also the stock price is a very attractive one to average down. This being said, you know how I invest by now: I think we all have very limited information about a business we don’t manage personally in an industry in which we don’t work on a daily basis. Therefore, I look for very high quality businesses (high net margins, low cyclicality, ample opportunities for growth, a competition that is not too fierce, etc.) led by great capital allocators. Why the combination of the two? Because very high quality businesses have a good probability of growing organically, and with a great capital allocator they also have a good probability of growing through acquisitions. This imo is the definition of the fastest growing business that could be found in the stock market (with some predictability at least!). Finally, I hope I can recognize an attractive price, when I see one. Then I accept my risks: if I have chosen the wrong horse, business results going forward will be disappointing and my investment will be proven a poor one. Period. I accept this without any problem. I leave sophisticated analysis both on the long side and on the short side to other board members! Nor do I try to outsmart a manager with a fantastic track record: “he should do this”, “he should do that”, “he is not investing wisely”, etc. … I think everyone is entitled to have his/her opinions … I just don’t see why those opinions should be taken more seriously than Pearson’s or other operators which have proven to be highly successful in the past. What I had an hard time to deal with was the accusation of fraud… VRX is the first company I have owned which was publicly accused of fraud… The lesson imo is a manager should care for reputation a lot! And we should invest with people who understand how much reputation truly counts in business. Pearson imo has never been very focused on his reputation… And now he is paying the price of that mistake, together with every other shareholder! I’ll keep monitoring how he deals with his and VRX’s reputation going forward very closely. I hope he takes a lesson in this regard from Buffett of course, but also from people like Watsa and Leonard. Cheers, Gio

I think I am adding some today. Cheers, Gio

Is this a tweet of yours? If not are you on twitter? Thank you, Gio

Amortization of “finite lived intangibles” is added back to calculate FCF, exactly as it is added back to calculate Cash EPS. Cheers, Gio

At last! That’s exactly the way I have been saying VRX should be valued for a while! I am not specifically endorsing the 15-20% discount, but the methodology in general. Cheers, Gio

I don’t understand: when they stopped buying other companies for some quarters, what we saw was: 1) good organic growth, 2) a debt level that went down quickly, 3) GAAP Earnings that started closing the gap with Cash EPS. This trend (1 + 2 + 3) makes me think the exact opposite of what you have said! Basically, your whole thesis boils down to this simple fact: you still don’t believe their organic growth numbers. Period. Who knows… You might be proven right! Cheers, Gio