Liberty

As long as Apple makes a majority of the profits in all the categories that they're in, I'm happy. I don't really care that they have a 0% market share of the fast-growing $100 no-margin undifferentiated phone/tablet segment or whatever. If I ever see someone else match their overall user experience and quality, I'll start to worry. Until then, they'll own the profitable end of the market. Even without any entries in new categories I think the next year should be interesting; iPhone 6 could be huge since there's a lot of pent up demand for bigger screens and the full refresh model years always make a bigger splash (even if 5s was a big jump forward, it didn't look much different and that matters to many people...), China Mobile is still just starting to ramp up, there's going to be tens of billions of additional buybacks, iOS 8 will be unveiled in June, iBeacons will start to pop up everywhere, CarPlay in mainstream brands, etc... So add to that something new like cool wearables that add value and further differentiates the iPhone ecosystem and/or a much better Apple TV (more content, gaming capabilities, etc) and things could get exciting. Some interesting tidbits here: http://www.bloomberg.com/news/2014-04-23/why-apple-s-iphone-success-in-bric-countries-is-a-big-deal.html

Here's my theory on iPad growth rates: The iPad came out right as Apple was at the peak of its powers and the world was at the height of its Apple mania. The company apparently had done no wrong for the past decade. Even the iPhone took a couple years to ramp up fully, but the iPad started super strong. It was a hit much faster than the iPod or iPhone were, everybody thought it would revolutionize a zillion industries, and it probably grew much faster during the first few years than it would've grown in a more normal period for the company and Apple customers. Well, now we're in a more normal period. If you draw a straight line from the iPad's introduction to now, the trajectory is pretty great (for something that costs this much and doesn't get payments spread over a few years like a phone). In fact, it's the most successful product launch in history iirc. People will always be disappointed when they compare the present to those first few years, but over time the tablet market will become much bigger, and Apple will make most of the profits in that market (market share doesn't matter much, especially if you include all tablets and not just those with comparable features to an iPad -- many are basically undifferentiated dumb video screens and Apple doesn't really compete there). But that's just my theory.

https://www.apple.com/pr/library/2014/04/23Apple-Reports-Second-Quarter-Results.html https://www.apple.com/pr/library/2014/04/23Apple-Expands-Capital-Return-Program-to-Over-130-Billion.html

But at the same time he probably understands that it is necessary to go public with Ackman and talk about the benefits of this deal to convince Allergan shareholders and put pressure on Allergan management in public. So far I have not seen anything from Allergan management. If they kill this deal without a higher bid from another company, the stock goes back to $110 and then they better a have a good explanation for their actions because the potential backlash could be huge. Oh yeah, he wouldn't do it if he didn't see the value of it. Such a big hostile takeover requires convincing the shareholders of Allergan and explaining to them why this makes sense, since Valeant does things differently and AGN shareholders can't be expected to all already understand that (though I think that the fact that there's 50% overlap between the two shareholder groups without Ackman's 9.7% is a very good sign). But it's still really not Pearson's thing. At the beginning of the presentation yesterday, he looked at the big room and cameras and everything and said: "I guess this is how it feels to be at big pharma... Bill Ackman is paying for all this, by the way. It'll never happen again, unless someone wants to pay for it again."

I'm no expert on poison pills, but I found these paragraphs from Wikipedia interesting: Update: Ackman and Pearson on Bloomberg: http://www.bloomberg.com/video/ackman-we-don-t-want-to-partner-with-everyone-NEpUMgVDSyKndF66WLYG8A.html You can see that Pearson is really not in his element, he probably hates that stuff.

Thanks, and I'll add my voice to those welcoming you to the first. Excellent first post!

Great, thanks. I've been to NL once, and it is an amazing corner of the world.

Here's part 2 of the post that made me start this thread: https://oraclefromomaha.wordpress.com/2014/04/23/alibaba-part-2-an-overview/

All investing is a cash to cash transaction, so the end price always matters. But it doesn't mean that you can't make decisions based on fundamentals rather than other things (momentum, how charts look, etc). I think Tom is making his decisions based on fundamentals, and so trying to say that he's not an investor or whatever is unfair. That doesn't mean that he'll be proven right in the end, but none of us can be sure of that either. The market always has the option of being irrational. That goes for shorts as well as long. What if everybody on this board had bought BAC at $7 because of how the fundamentals looked and years later it was at $3? That's the same kind of thing you're saying. We have to be right on process because we control that while we don't control outcomes.

Dazel, sorry if you've mentioned this in the past and I forgot, but I'm curious to know if you've personally met Brian Dalton (and the rest of the Altius team)? As always, thanks for your work on this idea.

Sad to see him go. Based on a few interviews, I have very high regard for his abilities. But the stated reason makes sense, and is probably a sign that Valeant is broadening the net in healthcare, or maybe just looking more at the large caps that ValueAct also looks at. Mungerville: It's announced here: http://ir.valeant.com/investor-relations/news-releases/news-release-details/2014/Valeant-Pharmaceuticals-Announces-Nominations-For-Board-Of-Directors/default.aspx

[amazonsearch]Double Your Profits: In Six Months or Less[/amazonsearch] Got this in the mail today. Haven't read it yet, but I expect it to be interesting. It's the book that the 3G people (Buffett's partners in the Heinz deal) hand out to everybody to explain their cost-cutting strategy, apparently. I know, not the best title. But hey, Greenblatt's You Can Be a Stock Market Genius doesn't have the best title either ;)

Valeant is a bit like 3G, Buffett's partners in Heinz (Ackman even referenced them today, he did the Burger King deal with them). They make what they buy a lot more valuable because they take a low-margin mindset to a high-margin industry and benchmark against true economic metrics. Pharma in general is bloated and doesn't focus on the right things at all (at least from a shareholder's point of view -- I'm sure it's great for employees and management ). For example, Allergan's management gets compensation based partly on the absolute R&D spend of the company -- measuring inputs rather than outputs. Valeant has more product launches in 2014 and better organic growth than they do but they spend much more on R&D and SG&A... I bet Buffett wishes he had the in-house expertise to take over big pharma companies and operate them better, that would make his hunting grounds a lot larger... But who wants to buy most pharmas and keep running them as they have been run? VRX doesn't have to keep making acquisitions to create value. If they were to forever stop today (except for a few bolt-ons and licensing deals), they would still grow decently organically, deleverage over a few years and then would have massive cash flow to pay huge dividends and/or do buybacks. But if they can create more value than that through acquisitions, they should keep doing them, as I expect they will. Is VRX worth 15x? 20x? I can't say for sure, but I think it's cheap now, and ideally I'm looking at 5-10 years down the road, not next quarter. (of course that would change if management or the strategy changes in ways I don't like) I look at it more like I look at Liberty Media or Altius or Transdigm than how I look at Bank of America or AIG, it's a different mental model. It's a solid platform for someone who I think is a great capital allocator. We'll see how it turns out.

I don't think lack of targets for M&A will be a problem. Pearson has talked about this a few times in this past, including today, and Ackman also had a few slides on this. Just in pharma there's probably like 6-7+ trillion in market cap, and if you add other areas of healthcare (because Valeant isn't just looking at pharma), that's many more trillions, with many of those being private companies (Pearson mentioned that in many places they are looking, 99% of companies are private and sometimes there's not even a stock exchange -- he mentioned he was recently in Vietnam, Indonesia, etc). So there's tons of targets for acquisitions if they want to do more, I'm not worried about that. It's selecting the right assets, and then discipline and execution that matters.

Found it: http://www.sec.gov/Archives/edgar/data/885590/000119312514152949/d714482d425.htm

More details about a possible deal are emerging: http://www.bloomberg.com/news/2014-04-22/charter-said-to-near-deal-with-comcast-for-1-5-million-customers.html

Has anyone found Ackman's presentation slides yet? Valeant's are here:

My guess is: The royalty deal only asked the market to look a little bit ahead to see dollar signs. JL might be a better opportunity all things considered, but it asks that you look even farther ahead, and Mr. Market doesn't see that far (especially for a stock that is still pretty under the radar). Which is great because if the market was efficient, we'd all be in index funds.

New info: Ackman just said that they're already working on their next deal with Valeant (a deal suggested by Pearson, as was Allergan as a target). This wasn't mentioned again in the Q&A unfortunately, he just said it in passing...

Hey! Come on! You believe Mr. Ackman… and you don’t believe me?!?! ;D ;D ;D Gio Valeant is one of my biggest positions, I wasn't the one doubting it :)

Ackman going through ever single accounting adjustment that Valeant does, has found no "mickey mouse" stuff there, says it all makes sense to better tell you the economic properties of the business. Saying the restructuring charges are better thought as part of the price of the acquisition rather than as against income, which is how Valeant thinks about it internally.

They don't include the lower tax rate in those synergies ("High single-digit tax rate for combined company in addition to cost synergies"), and I wouldn't be surprised if they kept finding more cost synergies (they always have in the past). I like how it would delever them significantly. Looks quite good to me so far. It's a pretty strong vote of confidence from Ackman too. He does his homework (was probably the only guy apart form Michael Burry who read 10s of thousands of pages of MBS documentation), so making it his biggest investment ever, saying "The combination of Valeant and Allergan represents the most strategic and value-creating transaction I have ever analyzed.", and saying that he intends to take all stock on the deal and "remain a long-term holder of the combined company" is not nothing.

Are you looking at the spinoffs too? IIRC, from 2006 to mid 2013, the return from LMCA + its spinoffs is around 33% year.

Import taxes won't be a problem for very long either: http://www.bloomberg.com/news/2014-04-20/tesla-to-start-model-s-sales-to-china-s-elusive-motorists.html "Tesla Motors Inc. (TSLA) Chief Executive Officer Elon Musk, who’s preparing to begin deliveries of the Model S electric vehicle in China, forecast the company will be making cars in the country in the next three to four years. "

I hadn't thought of the extra flexibility provided by blending from the various mines, This makes a lot of sense, thanks SharperDingaan, your insights are appreciated.