VRX - Valeant Pharmaceuticals International Inc.

[nodnub]

Am I the only one who thinks it would be fun to see Ackman or Ubben become CEO ala Warren Buffett at Salomon Brothers?

 

I think thats a very real possibility.

 

I don't think Ackman can speak concisely enough to do the job. :) 

 

Did you listen to his Herbalife or Valeant presentations?  I don't personally see him as an effective or convincing speaker.

[AzCactus]

Am I the only one who thinks it would be fun to see Ackman or Ubben become CEO ala Warren Buffett at Salomon Brothers?

 

I think thats a very real possibility.

 

I don't think Ackman can speak concisely enough to do the job. :) 

 

Did you listen to his Herbalife or Valeant presentations?  I don't personally see him as an effective or convincing speaker.

 

Maybe Jeff Ubben will step up to the plate. 

[ERICOPOLY]

Ackman, Valeant Board Both Say They Support CEO Pearson

 

http://www.bloomberg.com/news/articles/2015-11-05/ackman-valeant-board-both-say-they-support-ceo-pearson

 

If Ackman is taking this to heart, I would like to see him make this a 40% position the way that Buffett did with AMEX during the salad oil scandal.

 

Perhaps they are trying to leak to the market the progress of their internal investigation -- that from what they can tell, nobody at the top of Valeant is implicated (yet) in whatever it is that we're all afraid of.

[AzCactus]

Ackman, Valeant Board Both Say They Support CEO Pearson

 

http://www.bloomberg.com/news/articles/2015-11-05/ackman-valeant-board-both-say-they-support-ceo-pearson

 

If Ackman is taking this to heart, I would like to see him make this a 40% position the way that Buffett did with AMEX during the salad oil scandal.

 

Perhaps they are trying to leak to the market the progress of their internal investigation -- that from what they can tell, nobody at the top of Valeant is implicated (yet) in whatever it is that we're all afraid of.

 

I see your point Eric.  However, if the stock price is indication of the credibility there than the market seems to think that the board/Ackman are trying to pull a fast one. 

[sswan11]

Medpage article on specialty pharmacies:

 

http://www.medpagetoday.com/PublicHealthPolicy/HealthPolicy/54444?xid=nl_mpt_AME_Policy_2015-11-05&eun=g5337386d22r

[ourkid8]

http://www.businessinsider.com/mizuho-valeant-liquidation-scenario-2015-11

 

An analyst at Japanese investment bank Mizuho has outlined a 'liquidation scenario' for Valeant Pharmaceuticals.Essentially, this is Mizuho's approximation of what would happen to the company's stock if its management were "ousted" and it had to sell all of its assets in a fire sale.

 

The verdict: It would end up trading about 20% higher than it is now ($78), and settle at $100 a share.

 

"We try to remain rational and reiterate our BUY rating: We understand the panic associated with the turnover of large shareholders, potential government investigations, and the threat of management replacement," wrote analyst Irina Koffler.

 

"Despite our catastrophic analysis, our current price target remains $155 and we are not changing our estimates ahead of updated management guidance."

[RhubarbXIV]

From the article quoted above (emphasis mine):

 

"After calculating the value of the individual segments, we added in Valeant's current cash position, inventory value (assuming no impairment), accounts receivable (assuming none are uncollectible), and PP&E. We then subtracted Valeant's debt obligations, accounts payable, and accrued liabilities to find the cash available to shareholders. Dividing that by number of shares yielded $100.38."

 

This sounds a lot more like SOTP than liquidation.

[doughishere]

Am I the only one who thinks it would be fun to see Ackman or Ubben become CEO ala Warren Buffett at Salomon Brothers?

 

I think thats a very real possibility.

 

I don't think Ackman can speak concisely enough to do the job. :) 

 

Did you listen to his Herbalife or Valeant presentations?  I don't personally see him as an effective or convincing speaker.

 

You might be right. It may be time to head to that Dale Carnegie Course.

[doughishere]

http://www.businessinsider.com/mizuho-valeant-liquidation-scenario-2015-11

 

An analyst at Japanese investment bank Mizuho has outlined a 'liquidation scenario' for Valeant Pharmaceuticals.Essentially, this is Mizuho's approximation of what would happen to the company's stock if its management were "ousted" and it had to sell all of its assets in a fire sale.

 

The verdict: It would end up trading about 20% higher than it is now ($78), and settle at $100 a share.

 

"We try to remain rational and reiterate our BUY rating: We understand the panic associated with the turnover of large shareholders, potential government investigations, and the threat of management replacement," wrote analyst Irina Koffler.

 

"Despite our catastrophic analysis, our current price target remains $155 and we are not changing our estimates ahead of updated management guidance."

 

 

I dont think that there much doubt about there being value, even Munger says that to a degree, but the witch hunt has basically made this company un-touchable. If the people are gonna raise hell over it its better off to just leave it alone and find some other waters to fish in.

[Guest roark33]

Any time you discuss the value there, you have to consider the debt.  They have spent about 30B or so in debt to buy companies.  Their equity has value because those assets are considered more valuable in the hands of VRX's management due to lower costs and better utilization.  If the company is chopped up and sold, then where's the value?  I am not sure it is worth much more than the debt at that point.  Additionally, I have almost never seen that type of scenario work out well.  I can't count how many analyst wrote reports last year about Ocwen's book value at 25, 20, 15, 10.  The stock is around 7 today, and just last week the company showed a slide complaining that their book value was 18.  Who cares....

[undervalued]

Any time you discuss the value there, you have to consider the debt.  They have spent about 30B or so in debt to buy companies.  Their equity has value because those assets are considered more valuable in the hands of VRX's management due to lower costs and better utilization.  If the company is chopped up and sold, then where's the value?  I am not sure it is worth much more than the debt at that point.  Additionally, I have almost never seen that type of scenario work out well.  I can't count how many analyst wrote reports last year about Ocwen's book value at 25, 20, 15, 10.  The stock is around 7 today, and just last week the company showed a slide complaining that their book value was 18.  Who cares....

 

This is not the old days where investors can take over a company and sell off assets and keep the cash proceed to themselves. Usually those book values are depleted once they sold off the companies assets and paid laywers, pensions, litigations, salaries, etc. I don't know why they still use book value anymore.

[ZenaidaMacroura]

Vrx has elements of Ackman's two most famous shorts: HLF and MBIA.

 

Was listening to "Confidence Game" on Audibles, had an interesting thought vomit:

 

In the book there's a part where Ackman bemoans the ridiculousness of MBIA retaining a AAA rating (attributed to its stable  insurance operation) when that rating is itself a critical component of the success of the enterprise -that self-reinforcing and circular nature makes it a poor candidate for investment.  It's kinda funny because that's part of what made Valeant an attractive investment.  Confidence in VRX's ability to enhance the value of acquisitions allowed it access to debt/attractively pay up with equity.  Reinforcing the high multiple etc.

 

Then throw in some not so savory distribution methods.

 

Ironically HLF's success isn't self-reinforced by capital markets.  Herbalife Stock got nuked and the distributors and their downlines continued selling weightloss shakes largely oblivious to the drama.  Herbalife  doesn't need need wallstreet's approbation like Valeant does.

[fareastwarriors]

Every stock has a price… (but timing is key)

 

Deutsche Bank

Markets Research

Deutche_Bank_-_Every_stock_has_a_price_-but_timing_is_key02112015.pdf

[merkhet]

Vrx has elements of Ackman's two most famous shorts: HLF and MBIA.

 

Was listening to "Confidence Game" on Audibles, had an interesting thought vomit:

 

In the book there's a part where Ackman bemoans the ridiculousness of MBIA retaining a AAA rating (attributed to its stable  insurance operation) when that rating is itself a critical component of the success of the enterprise -that self-reinforcing and circular nature makes it a poor candidate for investment.  It's kinda funny because that's part of what made Valeant an attractive investment.  Confidence in VRX's ability to enhance the value of acquisitions allowed it access to debt/attractively pay up with equity.  Reinforcing the high multiple etc.

 

Then throw in some not so savory distribution methods.

 

Ironically HLF's success isn't self-reinforced by capital markets.  Herbalife Stock got nuked and the distributors and their downlines continued selling weightloss shakes largely oblivious to the drama.  Herbalife  doesn't need need wallstreet's approbation like Valeant does.

 

+1

[ccplz]

http://www.wsj.com/articles/BL-MBB-43236

 

Ackman talks too much...

[original mungerville]

Yes, Ackman seems to think Pearson's PR method isn't working, but he isn't doing much better. This whole WSJ interview where he effectively questions Pearson publicly, and then for damage control basically publishes an email to Pearson today?

 

WTF? Comes off as reactive and desperate frankly. In any case, it isn't helping confidence that's for sure.

[arcube]

http://www.wsj.com/articles/BL-MBB-43236

 

Ackman talks too much...

True, I wonder why he released this email.

[ourkid8]

Agreed and today's move was directly related to Ackman unfortunately.  I am desperately waiting for the special committee to finish their investigation, clear or fire MP and allow VRX to start regaining investor's confidence.  It's a long road ahead and there better not be another Philidor within the company or I may need to reconsider my dwindling position.  I am not even sure what they can do besides waiting for this investigation to complete. 

 

Any guesses on how long this takes? I say 1 month as there is a lot of pressure on the committee. 

 

Yes, Ackman seems to think Pearson's PR method isn't working, but he isn't doing much better. This whole WSJ interview where he effectively questions Pearson publicly, and then for damage control basically publishes an email to Pearson today?

 

WTF? Come off as reactive and desperate frankly. In any case, it isn't helping confidence that's for sure.

[supertutti]

http://www.wsj.com/articles/BL-MBB-43236

 

Ackman talks too much...

True, I wonder why he released this email.

 

CYA. Just covering his own arse.

[JayGatsby]

Ironically HLF's success isn't self-reinforced by capital markets.  Herbalife Stock got nuked and the distributors and their downlines continued selling weightloss shakes largely oblivious to the drama.  Herbalife  doesn't need need wallstreet's approbation like Valeant does.

I don't know much about it, but my guess is to a large extent VRX's isn't either. The patient and doctor want the best drug available, regardless of what hospital/insurance/VRX brain damage has to occur in the background.

 

I got interested here because of the prior statememts that book value and SOTP are worthless metrics. The house is on fire so it doesn't matter what's inside. Cleary the underlying assets purchased have a value outside of a VRX pixie dust multiple. What's interesting to me is, setting aside some of the legal/ethical issues because it's pharma, from a pure capital allocation perspective I think what Pearson did is the same thing that Buffett or any of the best capital allocators would have done. Presented with an overpriced valuation he went on a buying binge using that stock as currency. When the market turned on him, he no longer had that acquisition currentcy, so the strategy had to change. Isn't that basically the first half of the Teledyne story (including the legal issues)? The key will be whether he has the skill to execute the next phase of the strategy, which the market (and gov) may not even give him the opportunity to do. 5 years ago, EBITDA was $450M and shares were $25. Today, EBITDA is $5B (with a larger pipeline), and shares are $80. Not a bad track record for the long-term shareholder, including Pearson. The speculators, including Ackman, are the ones who got burned.

 

New to this one and couldn't understand the industry less, so I could be way off. Been lurking here because it's an interesting setup. May buy a small piece tomorrow just to keep it intersting. Thanks for posting that Deutsche piece. It's a little hard to grasp how something can trade at such a high multiple of EBITDA until you actually see the cash conversation on a piece of (electronic) paper.

[ourkid8]

http://ir.valeant.com/investor-relations/news-releases/news-release-details/2015/Valeant-Issues-Statement-On-Sales-Of-Company-Stock/default.aspx

 

Valeant Issues Statement On Sales Of Company Stock

 

11/06/2015

LAVAL, Quebec, Nov. 6, 2015 /PRNewswire/ -- Valeant Pharmaceuticals International, Inc. (NYSE: VRX) (TSX: VRX) stated today that 1,297,399 shares pledged to Goldman Sachs to secure loans made to chairman and chief executive officer J. Michael Pearson were sold by Goldman Sachs on November 5, 2015.  Goldman Sachs held the shares as collateral for loans extended to Pearson.

 

As disclosed in the company's proxy statement filed on April 22, 2014, the company's board permitted Pearson to pledge approximately two million shares. As of the company's most recent proxy statement, filed April 9, 2015, those shares represent approximately 20.19% of his shares beneficially owned. Pearson pledged those shares to Goldman Sachs as collateral for loans of approximately $100 million that he used for, among other things, financing charitable contributions, including to Duke University, and helping to fund a community swimming pool, purchasing Valeant shares, and meeting certain tax obligations related to the vesting and payment of Valeant compensatory equity awards. Goldman Sachs required repayment of the loans, and has informed the company that it sold the shares it held as collateral in satisfaction of the loans.  After repayment of the loans with the proceeds from the sale by Goldman Sachs, the loan agreements will terminate and there will be no amounts outstanding under those agreements.

 

"Since joining Valeant, I have not sold any shares provided to me as compensation, and it was not my desire that shares be sold now," Pearson said. "I have complete confidence in Valeant's ability to move forward and continue meeting our commitments to patients, doctors, and shareholders."

 

In January 2015, Pearson agreed to not receive a base salary and instead be compensated exclusively through cash and stock incentive awards tied to performance.

[valueyoda]

Gives a bit more color as to why the stock plunged yesterday.

[aws]

I would think of this as potential good news, but then again I also thought the same about when it happened to the CEO of TWGP.  In that case the CEO got the best price that was ever achieved again after being liquidated.

[ourkid8]

We have to give MP some credit here. His salary is $1/year and only gets paid with stock. He put this stock up as collateral against a loan and it finally got called. I doubt he was happy it was called but he still has huge skin in the game. 

 

I would think of this as potential good news, but then again I also thought the same about when it happened to the CEO of TWGP.  In that case the CEO got the best price that was ever achieved again after being liquidated.

[Liberty]

Via George Pearkes, Pearson's alumni profile at Dukes and his charitable gift:

 

http://dukengineer.pratt.duke.edu/node/268

 

https://today.duke.edu/2014/06/pearsongift