giofranchi

Valeant's Bad Acquisition Of Salix Is Now Supported With Numbers http://seekingalpha.com/article/2967326-valeants-bad-acquisition-of-salix-is-now-supported-with-numbers?source=email_rt_article_readmore&app=1&auth_param=7i5hb:1afaqon:ab712a4e310091da6be222144cc29601&uprof=25 Just some food for thought about why the “everything goes according to plan” scenario might not be the only scenario, and about what might go wrong. Gio

Oaktree Capital Group, LLC Announces Launch of Public Offering of Class A Units http://ir.oaktreecapital.com/phoenix.zhtml?c=212597&p=irol-newsArticle&ID=2021811 Gio

I don’t know if this has already been mentioned, but I really like the fact they have added the “in Per-Share Market Value of Berkshire” column in the front page. :) Gio

Yes! As I have said, this is what I call the “everything goes according to plan” scenario. But if you believe that in business something might go wrong, I think you should also get the debt concern… That's one of the reasons I prefer Oaktree to Blakstone, KKR, and Apollo... Gio

I would reommend reading [amazonsearch]Accounting for value[/amazonsearch] by Prof. Stephen Penman. Cheers, Gio

Yes, of course! But you must then feel comfortable about the mechanics of options trading… I already run two businesses, and I manage a stock portfolio (at least I try to do the best I can!)… Sincerely, I don’t know when I’ll find the time to practice enough with options! ;) Gio

I am gradually building a position, because when I don’t see things clearly enough, I usually get in a “watch from the sidelines and see what happens” mode… After I have witnessed how VRX resisted the ferocious attacks to its business model in 2014, I think I am comfortable enough to start again a small position, which I have done. At the same time, though, doubts have not utterly evaporated... Therefore, I believe the process of gradually building a larger position might give me more time to watch the company, while getting more and more comfortable with its business model. Of course, the issue of a high level of debt still remains, and will probably always remain… And I will probably never get 100% comfortable with that… It is the reason why I think I will never let VRX become more than 10% of my firm’s portfolio. As I have said, large enough to be significant, should everything turn out all right; yet not too large to cause great pain, if something bad and unexpected occurs. Gio

LOL. Maybe you guys can ask him how can he lead a fairly stress free life while running one of the largest companies in USA and periodically running into near-death corporate situations (Washington Post strike in 70s, SEC investigation in 70s, Salomon Brothers debacle, Gen Re debacle, Net Jets debacle, death of all the "made in America" brands he bought, Lubrizol and Sokol, etc.). I would have killed myself multiple times during his career. "Stress free" my a** ??? ::) :-X :'( :o I don’t agree. I think he is smart enough not to take himself nor Berkshire too seriously. He enjoys what he does very much, and would certainly like to do it as long as possible, as well as possible. But imo he won’t yield to pressures he doesn’t like, simply to add some percentage points to Berkshire’s returns. And that’s basically all that stress is about: the need to yield to something we don’t like to do, think, nor feel. In other words I believe he is in a position to say NO to whoever he wants, to whatever he wants, whenever he wants, and still go on doing what he loves practically undisturbed: and that’s my definition of being stress free! Cheers, Gio

Personally, of course I don’t like #1, while I am not really worried about #2: Pearson said during the conference call that Salix’s products have a favorable reimbursement status with payers. Its branded products may rely on limited duration patents for protection, but the fact GI is a lower priority for most other pharmaceutical companies, and the fact Pearson is not going to reduce Salix’s specialty sales forces or hospital, key account and field reimbursement teams, because he thinks those customer-facing roles have played and will play a huge role in the success of the company, make me think patents are not all that matters. Gio

original mungerville, just a thought: I try to never use a strategy that depends on what I think the behavior of the stock price might be in the future. I know little about options, but, if I have understood you correctly, LEAPS might be interesting whenever the stock price experiences great volatility, either up or down. Instead, equity is better when the stock price remains range bound for some time. Am I right? If so, I wouldn’t make use of LEAPS. Instead, I would gradually build a significant but not too large position in VRX, which is exactly what I am going to do, if you are not comfortable with an high level of debt. Or I would establish right away a very large position in VRX, if you are comfortable with an high level of debt. By the way, I don’t think VRX’s debt is at a temporary high level… As long as there are opportunities for growth, its debt will always stay at high levels… Maybe it will come down a little, getting below the 4x EBITDA threshold for a while, just to spike up again at the first large acquisition that becomes available… ;) Gio

http://www.marketwatch.com/story/consumer-inflation-trend-turns-negative-for-first-time-since-2009-2015-02-26 Gio

Just to be clear: I couldn’t care less about what people say regarding every single acquisition of VRX! Obviously, I trust Pearson much more than anyone else! ;) The only point I’d like to make is that not always acquisitions are riskless… And statistically, if you do lots of them, the chances one or two go wrong might not be negligible. Nothing too worrisome with that, anyone can make mistakes and yet go on with a great business, except for the fact that debt makes this eventuality a bit more complicated to deal with… Gio

Salix Pharmaceuticals Investors Should Now Walk Away With Their Heads Held High http://seekingalpha.com/article/2952896-salix-pharmaceuticals-investors-should-now-walk-away-with-their-heads-held-high?app=1&auth_param=7i5hb:1aeuahp:83c70f79c8270b6a1362cbbf099811e6&uprof=25 Gio

Ok… I get your point… I only wanted to make it clear there is a great difference between float and debt… Like you say, debt might have caused FFH lots of pain in the past, while float basically never did. ;) Gio

In other words, if we assume (not saying it is true! Only an assumption!) that FFH underwriting risk today is zero (meaning that from now on they will be able to underwrite profitably), just like many feel about BRK and MKL underwriting risk, I would say FFH might be as risky as VRX, if its whole portfolio of investments were in stocks plus wholly owned businesses, and if VRX weren't paying any interest on its debt. Gio

This comparison with FFH continues to be misplaced imo. The danger with VRX’s debt is if a large acquisition doesn’t ultimately work as expected, because then interests on its debt remain, while the expected earnings don’t materialize… FFH’s problems, instead, could be caused by underwriting losses, like it happened 10 years ago, and not by its portfolio of investments, the returns of which have never been negative since 2000 (with the only exception of 2013). Also today FFH’s portfolio of investments is very conservative, and I don’t think anyone is really worried about it being too risky… On the contrary: many have worries it is too conservative! Instead, if FFH loses too much money on its insurance operations, it would be like paying an exorbitant interest on debt, and if debt is high, that could cause much damage. If FFH’s float costs 10% and it makes 7-9% on its portfolio of investments… Well, we are obviously in trouble… Just like it happened 10 years ago! Imo this difference should be clear, because I don’t think the underwriting strength and capabilities of FFH today could be remotely compared to what they were 10 years ago… Being them so much improved, the risk tied to FFH’s large float is greatly diminished. Gio

Why not to look for an entrepreneurial lawyer, who is willing to invest alongside you in this business opportunity? Your capital + his work for free, then you share the earnings, if and when earnings come. I have done so many a time and, though certainly not easy, it is possible to find people interested in a sound business opportunity. ;) Cheers, Gio

Yes, of course! This is the scenario “everything goes according to plans”! ;) Gio Sure, but when the plan is conservative, with a large margin of safety, and something that has been done multiple times by the company before, I don't think it's crazy to use the plan as a base case. The whole point of spending months/years studying a company, digging up every insight possible about management and the assets, etc, is to get to a point where you either trust or don't trust management and the business (and if you don't, you don't invest!). When Prem says something, you tend to trust him because you've build up that trust over time. It's not just blind trust, right? To me, it's not crazy to trust Pearson at this point (trust but verify, of course). Salix appears to be going through a one-time, solvable problem. A salad oil scandal, if you will. The only reason the debt looks this high is because Salix EBITDA is depressed temporarily, but if it wasn't the case, they couldn't buy the company at this price. Maybe there are more problems, but I still trust VRX to make the best of the situation if that happens. I guess we'll find out over the next year or two how it works out. Liberty, Basically I agree with you. But, as I have always said, I look both for a great entrepreneur and for a business model I like and I am comfortable with. Just like you are probably more comfortable with the VRX business model, I am on the other hand more comfortable with the FFH business model... But I think I am fine with that, because the "base case" for VRX is an annual growth of Cash EPS in between 25% and 30%... Therefore, I don't have to invest large sums of capital to make VRX very meaningful for my firm's portfolio overall results: VRX's growth alone will guarantee very good returns ;) Cheers, Gio

Yes, of course! This is the scenario “everything goes according to plans”! ;) Gio

I wouldn't even know how to trade in LEAPS… I will proceed as I have said: established a 2.5% position today, and will keep adding a 1% each month as that cash comes in, until I reach a large enough position to have a meaningful beneficial impact on my firm’s portfolio, if everything goes according to plans (20-25% annual increase in Cash EPS for the next 8-10 years); but not too large a position as to cause significant damage, if something wrong and unexpected happens. I repeat: I am confident enough with such a strategy, because, despite the heavier debt load, I think VRX’s future today is much clearer than it was just some months ago (to me at least! ;)). Gio

PROVENGE® (sipuleucel-T) Demonstrates Sustained Immune Response Two Years after Treatment in Biochemically-Recurrent Prostate Cancer http://ir.valeant.com/investor-relations/news-releases/news-release-details/2015/PROVENGE-sipuleucel-T-Demonstrates-Sustained-Immune-Response-Two-Years-after-Treatment-in-Biochemically-Recurrent-Prostate-Cancer/default.aspx Gio

Yes! Wonderful! Imo the market is really undervaluing this deal… Gio

+1! :) Gio

Well, it seems I was not too far off: from the 2014 AR in attachment tangible assets per share at the end of the year were 194 pps, therefore the multiple paid is: 305 / 194 = 1.57. Cheers, Gio 2014_Annual_Report.pdf

Again the fact insurance is a commodity business should be compared to the act of selling bonds in the market or going to the bank asking for a loan: which is the easiest thing anyone can do? To write profitable underwriting contracts, or to go to the bank asking for a loan? ;) Gio