Liberty

http://www.wsj.com/articles/malones-liberty-global-in-talks-to-buy-cable-wireless-communications-1445528255

http://www.wsj.com/articles/malones-liberty-global-in-talks-to-buy-cable-wireless-communications-1445528255 Malone buying Malone?

This appears to be how the US system works, for complicated historical reasons that I don't fully understand. Nobody pays list prices, what matters is realized pricing.

One analyst asked about that one on the last call. Management said that they made a mistake.

For those wondering what the analysts have been saying: http://www.bloomberg.com/news/articles/2015-10-22/wall-street-analysts-say-valeant-s-stock-collapse-is-a-buying-opportunity

If those pharmacies are the channel for between 10-20% of the US drug business, they can't have that much of an impact on total volume (add back rest of the world and other channels that are covered by IMS where you can check volumes, as well as medical devices). So far all we have is anecdotal evidence from anonymous message boards (possibly planted by the shorts) that there's aggressive sales (refills, etc). Not saying it never happens, it probably does at many pharmacies, but for that small portion of the total distribution channel to have a material impact on overall company-wide volumes, these tactics would have to be of gigantic scale IMO. And in that 50% price growth, a lot of that comes from the Neuro & other part of the portfolio. If you adjust for that, a lot more of the growth comes from volume.

I'll just say one thing for now: Be careful about trusting 'evidence' that comes from anonymous forums like Cafepharma and other customer complaint sites when it is used by shorts who have obviously been working on this for a long time (and can have planted stories over months and weeks) and have millions and millions of dollars on the line. Very easy to plant these posts to create a certain impression to back up their claims. How convenient that over the past month almost all their talking points popped up on cafepharma... I'm sure all pharmacies out there have some real complaints against them, but it's something else entirely to go from: anonymous messages -> this is systematic widespread practice done on purpose with the knowledge of the supplier

Cheap attack on the messenger instead of the message. So what that Citron didn't get 100% of their calls right. When you are a long-only investor you get zero comments when you get 40% wrong and 60% right. When you are a short seller you are suddenly supposed to hit a 100% hit ratio? Afaik Citron "picks" have performed something like -26% versus the S&P on average... the messenger here is entirely relevant. and being wrong when you accuse someone of being a fraud is an entirely different and more serious way of being wrong than picking a long and being wrong because it didn't perform. The messenger matters because this isn't a math theorem that stands on its own, it's more like an article written by a journalist. The writer can decide to omit things, frame them in a certain way to make them appear just so, create innuendo, cherry pick facts, make misleading analogies, etc. The shorts are asking us to judge VRX's credibility based on facts that they know very well can't be verified in a day or two. This creates a panic window during which they can make millions with highly levered options and then get out, and if over the longer term it turns out their thesis was wrong, well.. They can always say they were wrong in good faith. Who cares? They're on the beach somewhere. This isn't some small chinese reverse merger small cap, this is big fish, I bet they got some hedge funds to pay for play a while ago and a bunch of players possibly made hundreds of millions from this. And if the 'journalist' happens to have a history of fraud and misleading statements, well, you might want to take things with a grain of salt... https://en.m.wikipedia.org/wiki/Andrew_Left#Criticism

Philidor press release: http://www.businesswire.com/news/home/20151021006812/en/Philidor-Rx-Services-Comments-Network-Pharmacy-Relationships

New strong statement from the company:

I think it works as a confidence signal. If he was losing confidence or regretting his investment, he probably wouldn't put a few hundred millions in at a day's notice. VRX is already a huge part of his portfolio, so I doubt we'll see him increase much more. But it's still real money, even for him. But I agree with your general point that big buyers are mostly tapped out. At these prices, I'm almost certain that the company will start buying back stock and/or debt when their window reopens. That won't make a huge difference, but if stock is truly well below IV, that will create good value.

If this is correct, Ackman has bought 2m additional VRX shares:

I think that was a good initial response by the company, if a bit slow on the line. For all we know they were on a plane to the Middle-East to go meet Amoun management or whatever (that deal was about to close)... Next, I'm looking forward to a more in-depth media interview with management so they can go in more detail and defend themselves more fully. I wouldn't be surprised if Ackman came out. Who knows, maybe they can even teach the shorts about these new-fangled things called "call centers" and "outsourced IT services". Days like today are always humbling, because you can have a lot of confidence in an idea, but when the price is moving against you a percent a second, your reptilian brain kicks in and it's really easy to want to join the panic. I didn't do anything, and maybe not joining the panic will later be revealed to be a mistake, but time will tell once the dust has settled.

http://ir.valeant.com/investor-relations/news-releases/news-release-details/2015/Valeant-Pharmaceuticals-Responds-To-Erroneous-Report/default.aspx

I'm not sure how it's supposed to, as it excludes the restructuring charges. If you look at FCF after the B&L restructuring charges fell (when they were going after AGN and hadn't made a big acquisition in a while), it went up significantly, as did the GAAP EPS. But anyway, this isn't the main thing to focus on right now.

http://www.streetinsider.com/Analyst+Comments/Valeant+%28VRX%29+Philidor+Concern+Likely+Misinformation+-+Nomura/10990463.html

I thought these tweets from DumbLuckCapital, who is really informed about this industry, were really interesting: That's definitely something that would be interesting to know, if these networks of pharmacies are common and legal.

Indeed. Quite the battleground.

I think you two are talking past each other. I believe that OM was saying that if you read the media, they make it sound like the whole VRX model was buying stuff and jacking up prices, and that since this won't happen as much anymore, the whole thing is broken. OM is saying that this was only a small part of their business, and that the rest is mostly intact, so it's not the big change of strategy that the media makes it sound like, even if it is a tweak to the strategy (refocusing on the areas where you think you'll do best going forward is smart, sticking to exactly what you've been doing after the facts on the ground change isn't). I think what hurts the most with all this is that they might have done a big merger with stock in the relatively near future, and now that's pushed back for an indefinite period. But they had other periods during which they didn't do big deals (ie. when they were trying to get Allergan) and they managed to create quite a bit of value during that time, so we might see more of that for a while, just growing the EBITDA organically and allocating FCF to whatever's best (tuck-ins, buybacks, debt paydown). In a way, it's strenghtening the foundation (better balance sheet, longer track record of organic growth and extra disclosure), unless there's one of those black swans outside of the company's control.

Can you elaborate a bit here on what you're thinking of? Fatal how? Something that shoots the whole industry in the head somehow? Hard to single out VRX, especially since they have a lot of cash pay stuff. If VRX divests the part of the portfolio that takes the big price increases, do you think the rest of the assets could be affected that much (international that has flat pricing and rest of US that has pricing relatively close to rest of industry)?

That's true. But if you compare Valeant's revenue growth and share count increase over the years, you'll see that they are not one of those. And in their areas of focus (eye health, derm, GI), they definitely have advantages in scale/distribution (this is part of what makes the tuck-ins attractive -- you plug them in the larger system), on top of the tax and low SGA advantages. What the low stock price prevents them from doing is big deals that they can't do with just FCF and debt, but they just did Salix less than a year ago, so it's not too bad to take a breather. In the meantime, they have other levers to pull. Organic growth and Salix inventory normalization should make them delever under 4x by the end of next year, and on top of that they'll have a few billions in FCF because most restructuring charges are gone, so they can use those for tuck-ins and/or buybacks and/or debt paydown. So double-digit organic growth plus a few percents from M&A and a lower share count should provide satisfactory returns even without a big deal (or if they pay down the debt, FCF will go up from lower interests). And at some point when things look better, a big deal will come. If they get rid of the neuro & other portfolio, what they are left with are high quality assets with good growth and little controversy.

For what it's worth, on the call they said that they had now proven to themselves that they could get good returns on their R&D approach (which is partly about using spare capacity at other labs rather than carrying the fixed costs themselves), which seems to have made them more comfortable in investing more. I think a few years ago, they probably weren't as sure and didn't have the capabilities they do now. A lot of good stuff has come out of Dow and B&L, and they are greenlighting pretty much everything Salix had in the pipeline. I don't think legacy Valeant, Biovail and Medicis were quite as effective as a R&D foundation, at the time... And of course, the optics of announcing more R&D are also appealing, but I don't think they would do it just for that reason if the ROI wasn't attractive. From memory, that was the second guy in a row to be asking 4 questions when they were close to the hour-and-a-half mark with other people left in the queue.. To me it just seemed like they wanted to give everybody a chance, but maybe you're right. I wonder how much debt they could put on that spin-off... Probably not a ton, but at least some.

A lot of the leverage reduction will come from growth in EBITDA. Salix inventory will be mostly normalized next year and is growing fast, add to that the strong organic growth which seems to be mostly on rail from a lot of new products ramping up (Xifaxan, Ultra, biotrue, Jublia), and they don't have to retire much debt to get under 4x. When they mention the $7.5bn guidance now, they almost always mention that it's conservative and that they expect to exceed it. If they do 8bn or more of EBITDA, that brings down leverage to around 3.75x if debt stays the same. I don't expect them to retire a gigantic amount of shares, but if they see it as the best ways to deploy capital, then they should do it. And if the stock stays at a low price for a while, maybe selling the neuro & other portfolio could raise cash to be redeployed to buyback at a larger scale (tender offer?)..

I like the flexibility. The way the media has been covering things without much context, I'm sure some people think that all that Valeant does is buy drugs and raise the price. But in fact, it was a relatively small portion of their business, a declining one, and they've always said that they want to go for durable products with growth and that this stuff isn't core, so this would be more of a tweak to the business model rather than a big change of direction. As Pearson said, out of the 150+ deals that they've made, only about a handful had to do with these "mispriced drugs". I thought it sounded like they were more interested in spinning it off than selling it outright, but we'll see. They said it was likely something would happen in the next 12 months. They already have a $2bn buyback program approved, and to my ears, they were strongly hinting that they would do buybacks when the restricted period was over (if prices stay low). I think they phrased it the way they did because they weren't sure if today's Q would make the price jump up and reduce the buyback opportunity. Apparently not. It definitely sounded like they are not prevented from doing buybacks. They said that they are committed to bringing leverage to under 4x by the end of 2016, and that they wouldn't issue new debt, but that there would be capacity left over for M&A and/or buybacks. If anyone wants the audio of the call: https://www.dropbox.com/s/m3i6cby4n8nn90m/2015-Q3-cc-VRX.m4a?dl=0

Q3: http://ir.valeant.com/investor-relations/news-releases/news-release-details/2015/Valeant-Pharmaceuticals-Reports-Third-Quarter-2015-Financial-Results/default.aspx Call about to begin. http://ir.valeant.com/files/doc_presentations/2015/q3/Q3-2015-Earnings-Deck-10-11-2015-Final.pdf