VRX - Valeant Pharmaceuticals International Inc.

[wisdom]

http://finance.yahoo.com/news/valeants-crisis-fuels-feud-between-ackman-australian-fund-144653311--sector.html

 

Hempton has had a couple of bad years and his way to money is by taking on Ackman

[lessthaniv]

Andrew and Mathew Davenport haven't really been discussed yet in much detail. As CEO, Andrew is thought to be the largest shareholder of Philidor and his brother Mathew also appears to be a shareholder. The deal with Philidor for $100M included an additional $133M in earnouts according to the Ackman slides. There was more at stake for the Davenports after the initial $100M changed hands.

 

Isolani had 10% of R&O and was in the process of closing on the balance. The management services agreement basically gives Isolani management authority but keeps Reitz on as PIC until that was approved to be changed upon closing.

 

It's quite possible that Andrew Davenport jumped the gun with respect to Isolani's authority as PIC in an attempt to hit the milestones required under the earnouts? He appears to have a financial motive to do so. 27% ownership according to SIRF.

 

He also appeared to be in some financial difficulties as he had several municipal liens.

 

http://sirfonline.wpengine.netdna-cdn.com/files/2015/10/Andrew-Davenport-Montgomery-County-Courts-webapp.montcopa.pdf

 

As Eric has pointed out, it comes down to MP's knowledge of what was going on. Was he aware and turned a blind eye or did he discover this like everyone else over the last couple of weeks?

 

Not responding to Reitz's claims of fraud is definitely concerning ...

 

 

 

[Txvestor]

Anyone feel this should be in the too hard pile?

The methods used by VRX are clearly quite unsavory even if legal.

Charlie Mungers observation on this stock are quite prescient.

Now that the invisible shield for this enterprise is pierced, one would

think it will me mightily difficult for them the carry on with their business model

in the same vein that they did previously. Debt markets will not be as accomodating,

they are likely to face more gov't and press scrutiny, and other avenues and practices

that come near the edge are likely to be exposed, as I doubt phillidor was the only unsavory practice they were involved in, as current shareholders are hoping. Furthermore the negative publicity itself is self reinforcing.

With all of that said profitability is likely to get hit and growth avenues significantly stunted. I doubt this is a pharmacological Enron, and to be perfectly frank that sounds like hyperbole, and I am sure there is a residual value to this stock, but i suspect it is even below the current market price once

all the dust settles, as there are still believers in the stock. At the end of the day, this is still a very leveraged company which adds temendous risk under the circumstances to the investment thesis, but they are also a profitable company whose profits are destined to decline near term. As a value investor you damn near surely have to discount any growth prospects, and even current earnings prospects.

I have no position in the stock but did look at it when i saw all the headlines. The soap opera however is intriguing as hell.

At an extreme of valuation it will interest me, but not here.

[blainehodder]

I'm embarassed to even enable this kind of thing, but here is some more drama:

 

 

What would be the implications if we learned that Russ Reitz and his attorney had communications with the short sellers/Sirf pre 10/6?

 

Today we will launch a website that presents the results of an intensive and ongoing investigation $VRX. Left pleads 5th day before launch.

 

[ERICOPOLY]

I'm embarassed to even enable this kind of thing, but here is some more drama:

 

 

What would be the implications if we learned that Russ Reitz and his attorney had communications with the short sellers/Sirf pre 10/6?

 

Today we will launch a website that presents the results of an intensive and ongoing investigation $VRX. Left pleads 5th day before launch.

 

Like if the short sellers asked him for details of his fraud suspicions and he and his attorney said "we cannot comment due to the lawsuit".  That would constitute "communications" so what would be the implications of that?

 

I find it highly unlikely that the short sellers wouldn't try to contact Reitz and his attorney.  It's not like you're getting any information about his allegations from VRX investor relations, so why not give Reitz a try?

 

It would also constitute a deeper investigation into Reitz's allegations than Valeant itself had attempted, if Reitz is correct in saying that nobody ever responded to his fraud allegations.

 

[blainehodder]

I'm embarassed to even enable this kind of thing, but here is some more drama:

 

 

What would be the implications if we learned that Russ Reitz and his attorney had communications with the short sellers/Sirf pre 10/6?

 

Today we will launch a website that presents the results of an intensive and ongoing investigation $VRX. Left pleads 5th day before launch.

 

 

 

 

 

Like if the short sellers asked him for details of his fraud suspicions and he and his attorney said "we cannot comment due to the lawsuit".  That would constitute "communications" so what would be the implications of that?

 

I find it highly unlikely that the short sellers wouldn't try to contact Reitz and his attorney.  It's not like you're getting any information about his allegations from VRX investor relations, so why not give Reitz a try?

 

It would also constitute a deeper investigation into Reitz's allegations than Valeant itself had attempted, if Reitz is correct in saying that nobody ever responded to his fraud allegations.

 

I agree, though I think the Twitter user is implying that R&O was influenced by short sellers before the R&O filed suit.

 

Regardless, I agree that if I was short the stock, I'd attempt to contact Reitz and his lawyer for any info possible.

 

[ERICOPOLY]

I'm embarassed to even enable this kind of thing, but here is some more drama:

 

 

What would be the implications if we learned that Russ Reitz and his attorney had communications with the short sellers/Sirf pre 10/6?

 

Today we will launch a website that presents the results of an intensive and ongoing investigation $VRX. Left pleads 5th day before launch.

 

 

 

 

 

Like if the short sellers asked him for details of his fraud suspicions and he and his attorney said "we cannot comment due to the lawsuit".  That would constitute "communications" so what would be the implications of that?

 

I find it highly unlikely that the short sellers wouldn't try to contact Reitz and his attorney.  It's not like you're getting any information about his allegations from VRX investor relations, so why not give Reitz a try?

 

It would also constitute a deeper investigation into Reitz's allegations than Valeant itself had attempted, if Reitz is correct in saying that nobody ever responded to his fraud allegations.

 

I agree, though I think the Twitter user is implying that R&O was influenced by short sellers before the R&O filed suit.

 

Regardless, I agree that if I was short the stock, I'd attempt to contact Reitz and his lawyer for any info possible.

 

"Hey Reitz, rumor has it your license is being used fraudulently.  Just thought you should know!".

 

That could be a pre-lawsuit communication.  Reitz could then write letters to his masters who choose to completely ignore the letters.  This silence confirms the rumors and now he's scared shitless.

 

All possible.  Curious though why the masters ignore him.

[ERICOPOLY]

I agree, though I think the Twitter user is implying that R&O was influenced by short sellers before the R&O filed suit.

 

It says "pre 10/6" in the tweet that you quoted above.

 

Reitz' attorney was writing about the suspected fraud in July. 

 

They would have said "pre 7/x" if they meant to imply that the shorts planted ideas in Reitz' mind.

 

[wisdom]

http://www.wsj.com/articles/short-sellers-valeant-report-offers-no-new-allegations-1446483566

 

Hong Kong regulator's case on Mr Left from 2012.

[abitofvalue]

Bluemountain reportedly sold it's valeant stake too..

 

By the way - can someone explain how -  this is like te salad oil scandal ? My understanding was the salad oil fraud was done on Amex and the Buffett thesis was the panic of the fraud had not impacted Amex's funding so Amex would be ok. Here the issue is Valeant has been accused of fraud. No one other than Reitz was worried that Valeant may be the victim of the fraud. Seems pretty odd to use the salad oil scandal if your point is issues in one division haven't impacted the other if your point is hey don't worry if this division has fraud, the rest of the business is pretty good since that requires you to concurrently believe that (1) valiant engaged in fraud and (2) it was only at phillidor. Not sure what such a belief would be based on..

[blainehodder]

I agree, though I think the Twitter user is implying that R&O was influenced by short sellers before the R&O filed suit.

 

It says "pre 10/6" in the tweet that you quoted above.

 

Reitz' attorney was writing about the suspected fraud in July. 

 

They would have said "pre 7/x" if they meant to imply that the shorts planted ideas in Reitz' mind.

Indeed. My mistake.

[lessthaniv]

I agree, though I think the Twitter user is implying that R&O was influenced by short sellers before the R&O filed suit.

 

It says "pre 10/6" in the tweet that you quoted above.

 

Reitz' attorney was writing about the suspected fraud in July. 

 

They would have said "pre 7/x" if they meant to imply that the shorts planted ideas in Reitz' mind.

Indeed. My mistake.

 

Unless they meant the 10th of June ... That twitter handle in my 3 minute analysis seems tied to @timhoward717. There is already an inactived link on his page entitled "The truth about Valeant"

 

http://timhoward717.com/the-truth-about-valeant/

 

Incidentally ... timhoward717 is a fictitious name. The blog is anonymous so this isn't exposing anyone ...

 

[blainehodder]

I agree, though I think the Twitter user is implying that R&O was influenced by short sellers before the R&O filed suit.

 

It says "pre 10/6" in the tweet that you quoted above.

 

Reitz' attorney was writing about the suspected fraud in July. 

 

They would have said "pre 7/x" if they meant to imply that the shorts planted ideas in Reitz' mind.

Indeed. My mistake.

 

Unless they meant the 10th of June ... That twitter handle in my 3 minute analysis seems tied to @timhoward717. There is already an inactived link on his page entitled "The truth about Valeant"

 

http://timhoward717.com/the-truth-about-valeant/

 

Incidentally ... timhoward717 is a fictitious name. The blog is anonymous so this isn't exposing anyone ...

 

 

email is shown on Twitter login as

ba**********@yahoo.com

 

I DMed the guy. Looks like he has nothing more than info that shorts coordinate.

[ERICOPOLY]

Perhaps he should be asking Valeant about what their consolidated licensed pharmacist has to say instead of being concerned that short sellers have talked to him.

 

It seems more concerning that Valean't apparently hasn't done the same.

[ERICOPOLY]

That raises the question:

 

If you have consolidated the financials of R&O...

 

Shouldn't you be concerned that those financials depend on the accounts of a "liar"?

 

[Picasso]

That raises the question:

 

If you have consolidated the financials of R&O...

 

Shouldn't you be concerned that those financials depend on the accounts of a "liar"?

 

Seriously, the whole thing is a big joke.  Reitz was complaining for months about potential fraudulent activity and instead it's like they just ignore it as if he's crazy.  Then why still have him employed as the PIC shipping out hundreds of millions of inventory a year?

 

Even the counter suit doesn't mention any of the fraud allegations.  You would think Valeant lawyers would at a minimum explain why none of the behavior by Isolani/Philidor was illegal.  It's just weird. 

[ERICOPOLY]

Perhaps there is a footnote about material risks such as "doing business with a crazy man PIC" somewhere in the 10-Q.  I haven't looked.

[nodnub]

Bluemountain reportedly sold it's valeant stake too..

 

By the way - can someone explain how -  this is like te salad oil scandal ? My understanding was the salad oil fraud was done on Amex and the Buffett thesis was the panic of the fraud had not impacted Amex's funding so Amex would be ok. Here the issue is Valeant has been accused of fraud. No one other than Reitz was worried that Valeant may be the victim of the fraud. Seems pretty odd to use the salad oil scandal if your point is issues in one division haven't impacted the other if your point is hey don't worry if this division has fraud, the rest of the business is pretty good since that requires you to concurrently believe that (1) valiant engaged in fraud and (2) it was only at phillidor. Not sure what such a belief would be based on..

 

You are correct, it has very little in common with the AMEX Salad Oil Scandal.

 

Ackman using such a comparison makes him look like a moron.

 

[Picasso]

Eric, that just goes to show you're like 90% of VRX bulls.  Haven't even bothered to read the 10-K.  Tsk tsk tsk... If you did you would have noticed fun things like "growth of business dependent on deranged PIC from our California distribution network," and "our stock may be the target of bear raids from assets managers who display hatred towards our largest shareholders."

 

Joking aside, I only started really digging into the financials after AZ value put out his blog.  I owe that guy a beer for making sure I was at least verifying what management stated on slide decks and conference calls.  It's too easy to just rely on the work of others with this company. 

 

Anyway I'm reserving some judgment until we get more clarity on what happened, but at a minimum Pearson did a completely crappy job of handling these issues.  That's the problem when star managers do well for so long.  The board gives them too much rope and they start doing a lot of dumb things.

[ERICOPOLY]

I know that people prefer a manager to have ownership so that they have a vested interest in looking out for shareholder value.

 

However it might also mean that they have a vested interest in hiding something from investors and making misleading statements to boost the stock.

 

It's not all positives and it's not all negatives.

 

Bernie Ebbers at WorldCom was more than 100% long, with margin loans.  He sure was looking out for shareholder value though -- terrified that the truth would take down the stock.

[arcube]

Bluemountain reportedly sold it's valeant stake too..

 

By the way - can someone explain how -  this is like te salad oil scandal ? My understanding was the salad oil fraud was done on Amex and the Buffett thesis was the panic of the fraud had not impacted Amex's funding so Amex would be ok. Here the issue is Valeant has been accused of fraud. No one other than Reitz was worried that Valeant may be the victim of the fraud. Seems pretty odd to use the salad oil scandal if your point is issues in one division haven't impacted the other if your point is hey don't worry if this division has fraud, the rest of the business is pretty good since that requires you to concurrently believe that (1) valiant engaged in fraud and (2) it was only at phillidor. Not sure what such a belief would be based on..

 

You are correct, it has very little in common with the AMEX Salad Oil Scandal.

 

Ackman using such a comparison makes him look like a moron.

 

I was scratching my head with the same. It's not like Amex created the Salad Oil Scandal.

[Picasso]

Bluemountain reportedly sold it's valeant stake too..

 

By the way - can someone explain how -  this is like te salad oil scandal ? My understanding was the salad oil fraud was done on Amex and the Buffett thesis was the panic of the fraud had not impacted Amex's funding so Amex would be ok. Here the issue is Valeant has been accused of fraud. No one other than Reitz was worried that Valeant may be the victim of the fraud. Seems pretty odd to use the salad oil scandal if your point is issues in one division haven't impacted the other if your point is hey don't worry if this division has fraud, the rest of the business is pretty good since that requires you to concurrently believe that (1) valiant engaged in fraud and (2) it was only at phillidor. Not sure what such a belief would be based on..

 

 

You are correct, it has very little in common with the AMEX Salad Oil Scandal.

 

Ackman using such a comparison makes him look like a moron.

 

I was scratching my head with the same. It's not like Amex created the Salad Oil Scandal.

 

The best part is, he thought fair value of his PSH closed-end fund was 2x book value when VRX was at $220.  Meaning he thought investors should pay $440 for VRX because of his track record of over 15% "ROE's." 

 

He's just an optimistic guy. 

[ourkid8]

What Ackman was referring to is the fact they are both isolated at a 3rd party subsidiary and should not effect the actual business.  However in Valeant's case, he did not factor the potential reputational damage this issue may have caused.  The Jury is still out on that. 

 

Bluemountain reportedly sold it's valeant stake too..

 

By the way - can someone explain how -  this is like te salad oil scandal ? My understanding was the salad oil fraud was done on Amex and the Buffett thesis was the panic of the fraud had not impacted Amex's funding so Amex would be ok. Here the issue is Valeant has been accused of fraud. No one other than Reitz was worried that Valeant may be the victim of the fraud. Seems pretty odd to use the salad oil scandal if your point is issues in one division haven't impacted the other if your point is hey don't worry if this division has fraud, the rest of the business is pretty good since that requires you to concurrently believe that (1) valiant engaged in fraud and (2) it was only at phillidor. Not sure what such a belief would be based on..

 

You are correct, it has very little in common with the AMEX Salad Oil Scandal.

 

Ackman using such a comparison makes him look like a moron.

[ERICOPOLY]

Perhaps the real story is that long term contact with too much foot cream packaging turns you into a lunatic and that's the real story they don't want people to know...

 

That would be "product related" but there's that SEC gag on Left.

[rishig]

Eric, that just goes to show you're like 90% of VRX bulls.  Haven't even bothered to read the 10-K.  Tsk tsk tsk... If you did you would have noticed fun things like "growth of business dependent on deranged PIC from our California distribution network," and "our stock may be the target of bear raids from assets managers who display hatred towards our largest shareholders."

 

Joking aside, I only started really digging into the financials after AZ value put out his blog.  I owe that guy a beer for making sure I was at least verifying what management stated on slide decks and conference calls.  It's too easy to just rely on the work of others with this company. 

 

Anyway I'm reserving some judgment until we get more clarity on what happened, but at a minimum Pearson did a completely crappy job of handling these issues.  That's the problem when star managers do well for so long.  The board gives them too much rope and they start doing a lot of dumb things.

 

Managers that claim to be "value" investors say in their fancy letters that they seek dis-confirming evidence to their thesis. All they needed was a search engine to find blogs like AZ value where he was pointing out discrepancies in reported numbers in the 10-K and the silly presentations that VRX put out. I wonder what do these managers really do? Do they really not seek dis-confirming evidence?

 

I think it is just very hard to practice this in reality. Even for CoBF (which has the best online group in my opinion), the bulls on the thread were pounding the table and ignoring questions raised by AZ value. Several of the bulls no longer post on the thread. It is emotionally hard to deal with the outcome here. If I were them pounding the table hard, I would be doing the same thing today. So no judgements.

 

The lesson to learn here, in my opinion, is how do I avoid being in this situation ever again - To stay emotionally detached and rationally look at outcomes from all angles. Respect each ones opinion and think about it rationally. May be we need a new thread on CoBF about lessons learnt from investments when they go wrong.