Liberty

I think we're talking passed each other. I'm not talking about an end-of-the-world downturn, or catching the very bottom, I'm just saying that over the cycle sometimes multiples are higher and sometimes they're lower. They tend to be lower in downturns, hence the ability to create value. They've shown they can create M&A value even at higher multiples, but they'd do even better with lower multiples and fewer buyers competing with them. Even growing at the rate they've been growing at, they generate more cash than they can use, hence the big special dividends. It's not like capital is tight. They could delever quickly if they felt conditions change.. What matters is the risk of permanent loss, and I don't see it with TDG in almost any realistic scenario. Their debt is managed well, they gush cash, their customers can't go anywhere else, competitors can't realistically take business from them. Even without M&A they would still be able to create nice value with organic growth + buybacks, though not as much as with M&A. Anway, as I said, this is off-topic...

Sorry about that. I've updated it above, and here it is again: http://www.scribd.com/doc/236712968/Pershing-Sqr-1Q-2Q-2014-Investor-Letter-1-1 btw, if anyone has just the PDF version, I'd really appreciate it. I hate how Scribd makes it impossible to save anything, even if they don't actually own it.

I should probably have used a smiley next to "not bad" :D

How LMCA is likely to swallow SIRI over time: http://seekingalpha.com/article/2420095-sirius-xm-liberty-media-and-pie?uprof=45

2014 Q2 letter: http://www.scribd.com/doc/236712968/Pershing-Sqr-1Q-2Q-2014-Investor-Letter-1-1 Nice shoutout to Ian Cummings and Joe Steinberg in the intro. 21% after-fees CAGR over 10.5 years with average of 14% cash. 27.7% gross CAGR over same period. Not bad. The part about Allergan's management is worth reading.

R&D isn't the only factor. Remember that they pick their markets very carefully (product wise and geographically -- they have shown matrices that show this). So, for example, by staying out of Western Europe and focusing more on fast-growing emerging markets, their baseline organic growth is higher than most other pharmas that are truly global and play everywhere.

I guess we're just not looking at it the same way. A lot of value is created in down markets, when good businesses can be bought cheaply. I don't care about short-term volatility. Fact is, they have great management and one of the largest moats I've seen (and it has been tested often in the past 25 years). People aren't about to stop flying (except maybe in a huge world war, in which case their defense business would probably boom) and airframes stick around for decades, providing annuity-like streams of cash. And the company's still small compared to their opportunity size (and they return excess capital as special dividend, billions of it so far, so no growth for growth's sake here, only profitable growth). I wish they were cheaper (like everything I like), but it's one of those businesses that is actually worth a higher multiple, IMO. Anyway, this is off-topic...

I can't speak for PCP, but I don't think you understand TDG. They've been at this since the early 90s, they went through wars, 9/11, the GFC and everything else just fine (most were barely a blip in the overall revenue-passenger-mile numbers, which is what matters most to them). As long as planes and helicopters fly, they need replacement parts, and for most of the stuff TDG sells, there's only 1 supplier, them. In this incredibly fragmented industry, they have a zillion acquisition targets left, most in private equity or family owners' hands. They have a very impressive track record of reducing their purchase multiple by cutting costs, raising prices, and getting more products on new airframes, giving them EBITDA margins higher than most people's gross margins. By constantly shrinking the equity and focusing on per-share value, they don't even have to grow that big in absolute size to provide great returns to investors. So why do you see them failing any time soon? I agree most rollups, like most companies in general, aren't very good. But painting everyone with the same brush without understanding how they might be different doesn't seem like the right approach...

http://www.reuters.com/article/2014/08/13/us-hedgefunds-ackman-idUSKBN0GD1JC20140813 Ackman says he remains committed to Valeant's bid for Allergan Here's Ackman's Q2 letter (the part of Allergan management is worth reading): http://www.scribd.com/doc/236712968/Pershing-Sqr-1Q-2Q-2014-Investor-Letter-1-1 Looks like he wants to take Pershing public with an IPO too.

The problem with most rollups is that they don't realize real synergies, either don't integrate businesses or try to centralize everything, and they overpay, ideally (for them) with high-priced stock. I don't think it's the case for any of these things here. What we have is a superior operating model (like 3G) combined with superior capital allocation (only going in products and markets that have certain desirable characteristics and staying disciplined on price).

Thanks Wilson, good reads, both this and LINTA. I need to dig deeper into Starz. I looked at it after the spinoff but ended up passing (probably shouldn't have, eh).

http://dealbook.nytimes.com/2014/08/12/in-allergan-fight-a-focus-on-clever-strategy-overshadows-the-goal/

Not that it really matters and I like both Buffett and Greenblatt just fine without having to choose between the two, but if we could rerun history, I'd be curious to see how Buffett would have done with Greenblatt's starting AUM during the 1985-1994 period during which Greenblatt had his amazing run. Buffett's famous "I guarantee you I could do 50%/year with small amounts" (which might actually mean it's what he was doing at the time in his personal account with small sums) during a nice steep bull market would be fun to see.

This has been discussed before. The business doesn't optimizes for GAAP, it optimizes for cash flows and per share value. The restructuring costs aren't excluded, they are part of acquisition costs and then they look at what return they can get on the whole price. If it's a very high IRR, that's worth doing and creating value, if not, they pass on it. If they stopped doing any acquisitions, GAAP and their adjusted figures would converge, so it would look better, but less value would be created because they have a great track record of M&A. With no M&A, overall growth would be lower, but the debt would melt over time so the multiple the market is willing to pay would probably go up (and they could use the FCF for buybacks). M&A not absolutely necessary. In other words, there's no real economic difference between paying 500m and then expensing 500m for restructuring charges to earn 300m a year than paying 1bn upfront to earn 300m a year, except in the latter case it looks like you're earning 500m less during the restructuring period (which shields taxes). If the restructuring charges were always there for the same businesses, this would be terrible and the adjustments to figure out the earning power would be a sham. But always having restructuring charges for different businesses as they are acquired is fine, as long as once the restructuring ends you really have the synergies you expected. It's just part of the real economic cost of acquisition of those individual businesses. I don't see this as replacing R&D. Other pharmas/healthcare companies do a lot of acquisitions too, and don't have much better organic growth than Valeant, if not inferior (hard to say because they don't break it down) because VRX only focus on above-average markets (though even that depends how you look at it -- Valeant likes to buy end of life drugs cheaply and operate them as high IRR runoffs, so it masks a lot of their growth in the 'durable' part of the portfolio, but it is profitable). VRX has a very nice pipeline of big new products coming. M&A is another engine on top of very cost-effective R&D, IMO.

When those one-time costs run off, what do you get in free cash flow assuming there are no other acquisitions? I think they should be able to fairly easily do over 3bn in 2015 without Allergan, but that's with some bolt-ons.

You need to separate many one-time costs, which are really part of the cost of acquisitions, from the real earning power of the business (that's how they look at acquisition costs to calculate IRRs, upfront cost + cost of all synergies -- if they need to spend 100m once to get 50m in recurring synergies, this masks the earning power but is still totally worth it ROI-wise, and is tax-deductible too).

If someone dies from brain cancer, you don't blame them. Severe depression can be just as out of the victim's control as brain cancer.

http://www.beyondproxy.com/berkshire-hathaway-longevity/ Article by Lawrence Cunningham about BRK's shareholder culture.

How about: "Why should these businesses be together?" If you can't find a good reason, probably best to split them off.

Very sad.. In memoriam, here's one of my favorite scenes he did:

ValueAct basically says "VRX doesn't need to do AGN deal, though it would be nice": https://news.yahoo.com/exclusive-valueact-ceo-says-valeant-does-not-buy-163021723--sector.html

http://seekingalpha.com/article/2405815-altius-minerals-diversifying-away-from-iron-ore

True. If it does really fall below $100 buybacks would be much better. I was assuming the price would bounce higher if the deal falls through. Absolutely. It all depends on how Mr. Market reacts. A zillion arbs would cover their shorts, but the media would probably spin this as a big disaster for the company (they care more about the "politics" of these deals than the per share value, and it looks bad when you don't get to do a big deal), so sentiment could be negative for a while. Who knows.

Even without buybacks, they will pay down debt. I'd rather have them pay down debt so they can do an all cash acquisition next time. If they consider the stock very undervalued, opportunistic buybacks would be better first, IMO. They can pay down debt when the stock is less overvalued.

And if the deal is off the table, Valeant will start buybacks. They even mentioned it during Q&A of a recent event. I find the idea that without this deal VRX is in bad shape strange. Imagine an alternate timeline where they never went after AGN. They'd just have kept doing what they were doing before, which seemed to be working just fine. Sure, a big merger of equals is a great ways to potentially create a lot of value all at once via operations and tax synergies and to delever, but they don't need it. Look at the rate at which they've been adding bolt-ons this year, add to that more mid-sized deals like B&L, and they can deploy a lot of capital. They've had deals that they walked away from in the past and it wasn't the end of the world... In fact, it's a very good sign showing that they're disciplined and won't overpay. It would just be too bad if Allergan succeeded in killing the deal against the will of their own shareholders, because that kind of crazy corporate bylaw model will spread and be used by other companies to make it impossible for an acquirer to go directly to the company's shareholders.