Liberty Posted March 9, 2015 Share Posted March 9, 2015 http://www.businesswire.com/news/home/20150309006213/en/Pershing-Square-Announces-Position-Valeant-Pharmaceuticals-International#.VP32s4HNGPS Pershing Square Holdings, Ltd. (ticker: PSH:NA) announced today a new position in Valeant Pharmaceuticals International, Inc. (ticker: NYSE: VRX) representing approximately 16.9% of the PSH portfolio (based on the closing NAV of PSH and the closing share price of VRX on Friday, 6 March 2015). Pershing Square Capital Management, L.P., the investment manager for Pershing Square Holdings, Ltd., announced that various funds it manages have purchased 16,473,933 shares of Valeant Pharmaceuticals International, Inc., representing 4.9% of Valeant. Link to comment Share on other sites More sharing options...
Liberty Posted March 9, 2015 Share Posted March 9, 2015 how about the long game? Allergan and valeant? You mean eventually swallowing the new AGN-ACT? I'd certainly love to be a fly on the wall next time Ubben and Ackman meet... Link to comment Share on other sites More sharing options...
Guest wellmont Posted March 9, 2015 Share Posted March 9, 2015 how about the long game? Allergan and valeant? You mean eventually swallowing the new AGN-ACT? I'd certainly love to be a fly on the wall next time Ubben and Ackman meet... or selling it to act, and spinning out a small vehicle for pearson to do his thing again... Link to comment Share on other sites More sharing options...
original mungerville Posted March 10, 2015 Share Posted March 10, 2015 how about the long game? Allergan and valeant? You mean eventually swallowing the new AGN-ACT? I'd certainly love to be a fly on the wall next time Ubben and Ackman meet... or selling it to act, and spinning out a small vehicle for pearson to do his thing again... Now we're talking! Link to comment Share on other sites More sharing options...
giofranchi Posted March 10, 2015 Author Share Posted March 10, 2015 how about the long game? Allergan and valeant? You mean eventually swallowing the new AGN-ACT? I'd certainly love to be a fly on the wall next time Ubben and Ackman meet... or selling it to act, and spinning out a small vehicle for pearson to do his thing again... Ah! That would be fantastic! ;) Gio Link to comment Share on other sites More sharing options...
giofranchi Posted March 10, 2015 Author Share Posted March 10, 2015 If true, the question is, what's Ackman's angle? What about engineering the friendly acquisition of Zoetis by Valeant? Zoetis is a $22 billion company in market cap with almost $5 billion in revenue, and it is the largest manufacturer of medication for pets and livestock in the world. Ackman describes Zoetis’s portfolio as “highly durable and diverse, not subject to high levels of generic competition”. Do you think animal health could be another interesting platform for Valeant to develop? Gio Link to comment Share on other sites More sharing options...
Liberty Posted March 10, 2015 Share Posted March 10, 2015 If true, the question is, what's Ackman's angle? What about engineering the friendly acquisition of Zoetis by Valeant? Zoetis is a $22 billion company in market cap with almost $5 billion in revenue, and it is the largest manufacturer of medication for pets and livestock in the world. Ackman describes Zoetis’s portfolio as “highly durable and diverse, not subject to high levels of generic competition”. Do you think animal health could be another interesting platform for Valeant to develop? Gio I used to think so when the stake was first announced, but comments by Pearson later made me think that this was probably not a high probability. But maybe he was just playing his cards close to his vest. We'll see. Link to comment Share on other sites More sharing options...
Phaceliacapital Posted March 10, 2015 Share Posted March 10, 2015 These guys are too smart, we'll never know until we're supposed to know. Link to comment Share on other sites More sharing options...
fareastwarriors Posted March 11, 2015 Share Posted March 11, 2015 BREAKING: Endo makes a $10.6 billion takeover offer for Salix, seeking to wrest drug maker from Valeant Link to comment Share on other sites More sharing options...
Liberty Posted March 11, 2015 Share Posted March 11, 2015 http://www.wsj.com/articles/endo-makes-takeover-offer-for-salix-pharmaceuticals-1426092445 Never a dull moment! Link to comment Share on other sites More sharing options...
philly value Posted March 11, 2015 Share Posted March 11, 2015 It's always interesting in these situations looking at moves in terms of business value vs. stock price....the offer is for $600M more than Valeant's and Valeant's market cap was down as much as ~$6B from the peak it hit earlier today. Link to comment Share on other sites More sharing options...
Liberty Posted March 11, 2015 Share Posted March 11, 2015 Looks like Endo offer might be only 25% in cash. Update: Here's the letter that Endo sent to the board of Salix: http://origin-qps.onstreammedia.com/origin/multivu_archive/ENR/181077-Salix-Non-Binding-Proposal_3_11_15_Letter-only.pdf Link to comment Share on other sites More sharing options...
tombgrt Posted March 11, 2015 Share Posted March 11, 2015 I am very much concerned about the debt levels. But as gio pointed out, debt levels will always remain high as long as Pearson is in charge and he keeps acquiring and integrating. If you trust in Pearson, then high debt should not be a problem per-se. My concern (or observation) is that the stock has run up too much. Look at the attached spreadsheet. Even if I assume $10 billion of sales in 2015, the P/S ratio (at 6.9) is higher than it has ever been in the last five years. If I assume 9.2 billion of sales and change the share price to $240, p/S shoots up to 8.9. It has never crossed 6.7 in the last five years. And all this assumes no additional shares!! Also, in my first scenario, the share price does not go anywhere (as assumed) for the next 10 months and yet the P/S is above average. Time to reduce or exit? Comments please! Phil Fischer: http://i.imgur.com/SIgHeaa.jpg This is a bit how I view Valeant. The stock price bouncing around is not all that relevant as earnings can quadruple over the next 5-7 years (25% compounded growth). So if its going from $200 to $800 per share, do I care that much if I pay $120, $150 or $200 for the shares. Obviously a bit, as the lower the price paid, the higher the percentage upside AS WELL AS the lower the percentage downside if something goes wrong. But overall, if we are right on the business, and they don't make a major blunder, the added profits from compounding should dwarf the added profits from a good entry price. Am I the only one who finds this mind-boggling? That's some special math.. I assume you'd be willing to buy at $400 as well? After all, in 7 years it is at $800, providing an 10.5% annual return, well above long term market average. You are making assumptions about the future that are increasingly uncertain the further out you go. It's an excellent way to get bitten in the ass imo. What do you mean by "the added profits from compounding should dwarf the added profits from a good entry price"? Those "added profits" will never dwarf your entry price as it is your entry price that determines what your final return will be, future compounding or not. Link to comment Share on other sites More sharing options...
original mungerville Posted March 12, 2015 Share Posted March 12, 2015 Tombgrt, My reference to compounding was in relation to owner earnings compounding (assuming a constant multiple). Of course you can't take that math to the extreme because it will bite you in the ass as you pointed out. But my central point here is with my view that Valeant can grow owner earnings by 25% compounded over the next few years - in the example, I took 6 years - whether you buy at $120 or $200 does not have as great an effect as you might suspect. The bulk of the return comes from the 25% growth in owner earnings. If you buy at $200, you might get 25%. If you buy at $120, your return will be higher for sure - I don't have a calculator but $120 to $200 is about a 60% increase, so if I spread that over 6 years, that 10% a year extra return for a total return of 35% compounded annually. So my statement that the bulk of the compounding comes from owner earnings growing (ie 25% per year, given an entry of $200), rather than the entry price (an extra 10% per year for a total of 35% given an entry price of $120) is true. In this scenario 2/3 of the compounding (ie 25%/35%) would come from the compounding of owner earnings not entry price. Furthermore, we are just talking from an equity valuation entry point perspective. If you take an enterprise value perspective, the effect of a $120 vs 200 entry price would be lower. So, I took the example out 6 years but do believe 25% is doable. If you want a more scientific generalized statement: for any equity investment, the higher both the timeframe and the compounding rate of owner earnings are (and assuming the multiple is unchanged), the less the entry price will matter relative to the compounding of owner earnings in terms of your total return - all else being equal. Link to comment Share on other sites More sharing options...
original mungerville Posted March 12, 2015 Share Posted March 12, 2015 This is why Ackman bought in Q1 at relatively high prices. He still sees runway and he also sees high growth potential down that runway. Link to comment Share on other sites More sharing options...
100 Shares Posted March 12, 2015 Share Posted March 12, 2015 The assertion that Valeant is just as good at 200 as 120 is absurd and using Ackmans purchase as proof is missing the point of what is clearly shown in the math of the situation for Ackman. Ackman originally was going to get Valeant shares through a stock swap at the time of the merger. He was going to get 1.23 shares of VRX for each share of AGN. Now, my guess is he still created his own "merger" by swapping his AGN shares for VRX despite the fact that the merger isn't going through and he made out even better. We don't know when he swapped except that it was in Q1 so let's look at the AGN to VRX stock price ratios. Jan 2: 1.47 Jan 20: 1.41 Feb 2: 1.37 March 2: 1.16 So despite the massive rise in stock price if you ignore taxes for simplicity (which would have been avoided in the actual merger) and under the assumption the he sold AGN and bought VRX with the proceeds; Ackman could actually be getting better relative value that what Pearson was offering. In this scenario. Ackman is not buying in at 160, 180 or 200 a share. He bought AGN for about $120 and was going to swap 1.23 shares of VRX giving him an effective cost basis of about $100. Now with his exchange ratio artificially changing he is getting VRX for even cheaper. there is a bit of speculation in this post but if this plays out like I am guessing Ackman is not "really" buying at these prices Link to comment Share on other sites More sharing options...
original mungerville Posted March 12, 2015 Share Posted March 12, 2015 Listen buddy, don't put words into my mouth - I don't have time for this shit. Re-read my two posts - the first, and then second with a more detailed explanation. "the assertion that Valeant is just as good at 200 as 120 is absurd" I didn't say that did I? Go read my two posts and then say something accurate before you waste my time. Link to comment Share on other sites More sharing options...
original mungerville Posted March 12, 2015 Share Posted March 12, 2015 You may well be right on your Ackman thesis. My point is, if they can compound earnings at 25% over 6 years, the return will be quite good even from these higher levels. And by the way, I bought at $120. Link to comment Share on other sites More sharing options...
Picasso Posted March 12, 2015 Share Posted March 12, 2015 The assertion that Valeant is just as good at 200 as 120 is absurd and using Ackmans purchase as proof is missing the point of what is clearly shown in the math of the situation for Ackman. Ackman originally was going to get Valeant shares through a stock swap at the time of the merger. He was going to get 1.23 shares of VRX for each share of AGN. Now, my guess is he still created his own "merger" by swapping his AGN shares for VRX despite the fact that the merger isn't going through and he made out even better. We don't know when he swapped except that it was in Q1 so let's look at the AGN to VRX stock price ratios. Jan 2: 1.47 Jan 20: 1.41 Feb 2: 1.37 March 2: 1.16 So despite the massive rise in stock price if you ignore taxes for simplicity (which would have been avoided in the actual merger) and under the assumption the he sold AGN and bought VRX with the proceeds; Ackman could actually be getting better relative value that what Pearson was offering. In this scenario. Ackman is not buying in at 160, 180 or 200 a share. He bought AGN for about $120 and was going to swap 1.23 shares of VRX giving him an effective cost basis of about $100. Now with his exchange ratio artificially changing he is getting VRX for even cheaper. there is a bit of speculation in this post but if this plays out like I am guessing Ackman is not "really" buying at these prices It is more absurd to think that Ackman would take after-tax profits and put it into VRX just because he wanted to "effectively" get VRX on the cheap. He can choose any investment he wants and Ackman being the 20-punchcard investor picked VRX. It doesn't matter what he invests in after AGN, he just wants to get the best returns with his after-tax dollars. He bought VRX this year because he thought it was the best investment available to him given what he knows or has planned. How can you interpret this any other way? Link to comment Share on other sites More sharing options...
100 Shares Posted March 12, 2015 Share Posted March 12, 2015 Mungerville - Sorry. I didn't mean for that to be intercepted that way. It was more of me thinking out loud and going on a rant. The 120 vs 200 wasn't meant to be taken so literal. I'm in on your side that over the long term compounding matters much more. As munger said if you buy a company that compounds value at 18% over 40 years, you'll have a wonderful result even if you initially pay a n expensive looking price. 6 years isn't quite 40 but I see the point your going making and even in that short time frame you can have multiple contraction and make out very well. Picasso - like I said I am speculating. Time will tell if their was any accuracy to my wild guesses. Link to comment Share on other sites More sharing options...
giofranchi Posted March 12, 2015 Author Share Posted March 12, 2015 http://www.wsj.com/articles/endo-makes-takeover-offer-for-salix-pharmaceuticals-1426092445 Never a dull moment! This might be great imo: just walk away with the $356 million breakup fee, and then buy Zoetis with Ackman’s help! Zoetis is larger than Salix and sincerely I like it better. ;) Gio Link to comment Share on other sites More sharing options...
giofranchi Posted March 12, 2015 Author Share Posted March 12, 2015 http://ir.valeant.com:80/investor-relations/news-releases/news-release-details/2015/Valeant-Comments-On-Endo-Offer-To-Acquire-Salix/default.aspx It doesn't seem Pearson is going to increase his offer... Gio Link to comment Share on other sites More sharing options...
giofranchi Posted March 12, 2015 Author Share Posted March 12, 2015 What Ackman engineered last year with Pearson was great! But for VRX it got spoiled by an incredible war waged by Allergan’s management… Why not to repeat something so brilliantly conceived again? This time, though, with a company somewhat easier to deal with? For VRX it would be imo an even better deal than Salix (VRX would instantly become the n.1 company in pet health worldwide: a very strong position and a very interesting new platform on which to build through many more possible acquisitions in the future), and for Ackman it would be a double home run, first a spectacular gain in Zoetis, then another spectacular gain in VRX! ;) Gio Link to comment Share on other sites More sharing options...
Liberty Posted March 12, 2015 Share Posted March 12, 2015 http://blogs.wsj.com/moneybeat/2015/03/12/why-valeant-is-expected-to-prevail-in-the-war-for-salix/ Link to comment Share on other sites More sharing options...
original mungerville Posted March 13, 2015 Share Posted March 13, 2015 Mungerville - Sorry. I didn't mean for that to be intercepted that way. It was more of me thinking out loud and going on a rant. The 120 vs 200 wasn't meant to be taken so literal. I'm in on your side that over the long term compounding matters much more. As munger said if you buy a company that compounds value at 18% over 40 years, you'll have a wonderful result even if you initially pay a n expensive looking price. 6 years isn't quite 40 but I see the point your going making and even in that short time frame you can have multiple contraction and make out very well. Picasso - like I said I am speculating. Time will tell if their was any accuracy to my wild guesses. No big deal. I just get annoyed when people start telling me that I said price doesn't matter at all when that is not what I said - obviously, this is a value investing site!!! Link to comment Share on other sites More sharing options...
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