VRX - Valeant Pharmaceuticals International Inc.

[rishig]

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

 

No, Valeant never issued equity. It used current low cost debt to fund acquisitions. And most of it is not long dated. Hence the balance sheet is so levered. So Pearson is more closer to Green (as per Munger) than Singleton.

 

As far as value creation is concerned, the theory is that the $40B that Valeant paid for the acquisitions is worth 2-3x in the hands of Valeant. Currently, enterprise value is $55B. If those assets are worth only 1.5x in the hands of Valeant, then despite the large drop in share price, you are paying the full price today. Don't let price be an anchor.

 

So the million dollar question - what are these assets worth in the hands of Valeant. The longs think it is obviously in the 3x range.

 

Also, am I going to take any analysts or guru investors word on what these assets are worth in Valeant's hands? No. Authority bias shouldn't blind me, I should be able to understand the assets and the levers Valeant can sustainably pull to come up with this on my own.

 

I personally think this is in my "too hard" pile to judge what these assets are worth in Valeant's hands. That's just me. Someone else may think differently. That's what makes a market.

[Guest Schwab711]

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.

 

He pledged 2m shares for $100m loan when the stock was trading at $210/shr ($420m collateral value). So he used the proceeds to buy more VRX shares?! Why would you want him to be CEO if he were really that dumb.

 

They pay him in all stock to build a story. It's not like he actually owns all of those shares they've given him. There are many ways to monetize restricted stock.

[rishig]

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.

 

He pledged 2m shares for $100m loan when the stock was trading at $210/shr ($420m collateral value). So he used the proceeds to buy more VRX shares?! Why would you want him to be CEO if he were really that dumb.

 

They pay him in all stock to build a story. It's not like he actually owns all of those shares they've given him. There are many ways to monetize restricted stock.

 

If you really want your employees to be vested, you disallow hedging and pledging of any kind. For tax obligations, the employer just sells the portion of vesting RSUs to pay taxes at vest time. I agree with Schwab, this is a nice story, like all the other stories.

[ERICOPOLY]

Allowing your CEO to margin up his company stock...

 

Do this unwittingly create an incentive for him to focus on managing the stock price not just over the long term, but now over the short term as well?

[APG12]

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.

 

He pledged 2m shares for $100m loan when the stock was trading at $210/shr ($420m collateral value). So he used the proceeds to buy more VRX shares?! Why would you want him to be CEO if he were really that dumb.

 

John Malone is an IDIOT!

 

http://www.bloomberg.com/bw/stories/2008-10-15/john-malone-sells-lowbusinessweek-business-news-stock-market-and-financial-advice

 

 

 

[Guest Schwab711]

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.

 

He pledged 2m shares for $100m loan when the stock was trading at $210/shr ($420m collateral value). So he used the proceeds to buy more VRX shares?! Why would you want him to be CEO if he were really that dumb.

 

John Malone is an IDIOT!

 

http://www.bloomberg.com/bw/stories/2008-10-15/john-malone-sells-lowbusinessweek-business-news-stock-market-and-financial-advice

 

Pretty big difference in loaning your stock at 50% collateral (standard) vs <25%. You can see what Goldman thought of the stock.  You are also using an article from 2008, which is a slightly different environment.

[vinod1]

I think Valeant's board also has some responsibility in all this mess via their compensation plan.

 

They have set some ultra-aggressive goals for management. The lowest performance hurdle a couple of years back when I was looking at this was 15% annual growth rate of the stock. Vesting increases 100% more each at 30%, 45% and 60% annual growth in stock price.

 

It just boggles my mind that a goal of 60% annual returns was even thought to be achievable. Pearson seems to have specifically asked for the 60% hurdle. So it kind of paints a picture of him.

 

The board thought that risk would be mitigated by having the CEO retain all the holdings. But a culture that is shooting for 45% and 60% annual returns seems to be just asking for trouble.

 

Vinod

[lessthaniv]

Allowing your CEO to margin up his company stock...

 

Do this unwittingly create an incentive for him to focus on managing the stock price not just over the long term, but now over the short term as well?

 

More and more it appears to me that Pearson was doing exactly this. (The design of the comp plan for Laiser Kornwasser too) I closed out my small positions last week and will watch from the sidelines. I'm failing to connect the same same dots as Ackman in concluding that Pearson is worthy of support. 

 

Still think there is good value here. But high debt levels, potential increasing financing charges, tax scrutiny, pricing scrutiny, being made a political issue ... In the end, there is easier decisions for me elsewhere.

[100 Shares]

just want to point out some incorrect statements in this recent discussion.  it wasn't at $210 at share. They said they stated this in the proxy filed in 2014 meaning it occurred somewhere between April 2013 and April 2014. Furthermore  looking at the insider buys he made the purchase December 17, 2013  around $110 a share.

[Guest Schwab711]

just want to point out some incorrect statements in this recent discussion.  it wasn't at $210 at share. They said they stated this in the proxy filed in 2014 meaning it occurred somewhere between April 2013 and April 2014. Furthermore  looking at the insider buys he made the purchase December 17, 2013  around $110 a share.

 

Thank you. I misread and that is a material difference! So the loan was roughly at the standard 50% and I take back my comment on GS's opinion of the stock.

[APG12]

just want to point out some incorrect statements in this recent discussion.  it wasn't at $210 at share. They said they stated this in the proxy filed in 2014 meaning it occurred somewhere between April 2013 and April 2014. Furthermore  looking at the insider buys he made the purchase December 17, 2013  around $110 a share.

 

Thank you. I misread and that is a material difference! So the loan was roughly at the standard 50% and I take back my comment on GS's opinion of the stock.

 

Regardless, was your point that it's a black mark against Pearson because he was MORE conservative?

[JayGatsby]

No, Valeant never issued equity. It used current low cost debt to fund acquisitions. And most of it is not long dated. Hence the balance sheet is so levered. So Pearson is more closer to Green (as per Munger) than Singleton.

 

As far as value creation is concerned, the theory is that the $40B that Valeant paid for the acquisitions is worth 2-3x in the hands of Valeant. Currently, enterprise value is $55B. If those assets are worth only 1.5x in the hands of Valeant, then despite the large drop in share price, you are paying the full price today. Don't let price be an anchor.

 

So the million dollar question - what are these assets worth in the hands of Valeant. The longs think it is obviously in the 3x range.

 

Also, am I going to take any analysts or guru investors word on what these assets are worth in Valeant's hands? No. Authority bias shouldn't blind me, I should be able to understand the assets and the levers Valeant can sustainably pull to come up with this on my own.

 

I personally think this is in my "too hard" pile to judge what these assets are worth in Valeant's hands. That's just me. Someone else may think differently. That's what makes a market.

 

Fair points. I think you're probably right about the "too hard" pile. You're right that if I don't know what the assets are I shouldn't be buying. Not sure how you put a box around political risk. With Exxon being subpoenad over failing to disclose the risks to their business model as a result of climate change who knows what the risk are here. I understand the theoretical tax benefits but a higher % of their profits may come from the US than they disclosed to the IRS.

[arcube]

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.

 

He pledged 2m shares for $100m loan when the stock was trading at $210/shr ($420m collateral value). So he used the proceeds to buy more VRX shares?! Why would you want him to be CEO if he were really that dumb.

 

They pay him in all stock to build a story. It's not like he actually owns all of those shares they've given him. There are many ways to monetize restricted stock.

 

I completely agree. Zero dollar salary is a publicity gimmick. People have to realize that compared to his MCK days, MP is making hand over fist. Deserved or not, we will soon come to know. I also think that this creates a perverse incentive. Everything on the upside - why are we surprised he went to many extremes.

[arcube]

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

 

Not sure if that is real color. Appx. 50 mm shares changed hands yesterday.

[arcube]

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.

 

He pledged 2m shares for $100m loan when the stock was trading at $210/shr ($420m collateral value). So he used the proceeds to buy more VRX shares?! Why would you want him to be CEO if he were really that dumb.

 

They pay him in all stock to build a story. It's not like he actually owns all of those shares they've given him. There are many ways to monetize restricted stock.

 

If you really want your employees to be vested, you disallow hedging and pledging of any kind. For tax obligations, the employer just sells the portion of vesting RSUs to pay taxes at vest time. I agree with Schwab, this is a nice story, like all the other stories.

 

Well said. Very similar to what Aubrey Mcclendon saga at Chespeake. He had pledged a ton of his shares too...

[ZenaidaMacroura]

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

 

No, Valeant never issued equity. It used current low cost debt to fund acquisitions. And most of it is not long dated. Hence the balance sheet is so levered. So Pearson is more closer to Green (as per Munger) than Singleton.

 

As far as value creation is concerned, the theory is that the $40B that Valeant paid for the acquisitions is worth 2-3x in the hands of Valeant. Currently, enterprise value is $55B. If those assets are worth only 1.5x in the hands of Valeant, then despite the large drop in share price, you are paying the full price today. Don't let price be an anchor.

 

So the million dollar question - what are these assets worth in the hands of Valeant. The longs think it is obviously in the 3x range.

 

Also, am I going to take any analysts or guru investors word on what these assets are worth in Valeant's hands? No. Authority bias shouldn't blind me, I should be able to understand the assets and the levers Valeant can sustainably pull to come up with this on my own.

 

I personally think this is in my "too hard" pile to judge what these assets are worth in Valeant's hands. That's just me. Someone else may think differently. That's what makes a market.

I never said they issued equity.  I said they need to be well regarded to finance (however they do it whether debt or equity) their acquisitions AND for their target to not mount an Allergan-type of campaign.  There is far less overlap between the group that reads the Wall Street Journal AND run a nutrition club than between journal readers and the people in a position to make decisions that impact valeant (financiers, regulators, management and boards at acquisition targets, PBMs, Insurers, hospital administrators etc).

 

The debt is still dependent on sentiment.  as for using stock - biovail (maybe since that was the transformative beginning it doesn't count)plus they have tried to use equity with Allergan.  The option to use stock is gone.  Certainly that optionality had not insignificant  latent value?

[rishig]

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

 

No, Valeant never issued equity. It used current low cost debt to fund acquisitions. And most of it is not long dated. Hence the balance sheet is so levered. So Pearson is more closer to Green (as per Munger) than Singleton.

 

As far as value creation is concerned, the theory is that the $40B that Valeant paid for the acquisitions is worth 2-3x in the hands of Valeant. Currently, enterprise value is $55B. If those assets are worth only 1.5x in the hands of Valeant, then despite the large drop in share price, you are paying the full price today. Don't let price be an anchor.

 

So the million dollar question - what are these assets worth in the hands of Valeant. The longs think it is obviously in the 3x range.

 

Also, am I going to take any analysts or guru investors word on what these assets are worth in Valeant's hands? No. Authority bias shouldn't blind me, I should be able to understand the assets and the levers Valeant can sustainably pull to come up with this on my own.

 

I personally think this is in my "too hard" pile to judge what these assets are worth in Valeant's hands. That's just me. Someone else may think differently. That's what makes a market.

I never said they issued equity.  I said they need to be well regarded to finance (however they do it whether debt or equity) their acquisitions AND for their target to not mount an Allergan-type of campaign.  There is far less overlap between the group that reads the Wall Street Journal AND run a nutrition club than between journal readers and the people in a position to make decisions that impact valeant (financiers, regulators, management and boards at acquisition targets, PBMs, Insurers, hospital administrators etc).

 

The debt is still dependent on sentiment.  as for using stock - biovail (maybe since that was the transformative beginning it doesn't count)plus they have tried to use equity with Allergan.  The option to use stock is gone.  Certainly that optionality had not insignificant  latent value?

 

zenaidamacroura, you didn't say Valeant issued equity. I was responding to jaygatsby's comment: "Presented with an overpriced valuation he went on a buying binge using that stock as currency."

[ZenaidaMacroura]

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

 

No, Valeant never issued equity. It used current low cost debt to fund acquisitions. And most of it is not long dated. Hence the balance sheet is so levered. So Pearson is more closer to Green (as per Munger) than Singleton.

 

As far as value creation is concerned, the theory is that the $40B that Valeant paid for the acquisitions is worth 2-3x in the hands of Valeant. Currently, enterprise value is $55B. If those assets are worth only 1.5x in the hands of Valeant, then despite the large drop in share price, you are paying the full price today. Don't let price be an anchor.

 

So the million dollar question - what are these assets worth in the hands of Valeant. The longs think it is obviously in the 3x range.

 

Also, am I going to take any analysts or guru investors word on what these assets are worth in Valeant's hands? No. Authority bias shouldn't blind me, I should be able to understand the assets and the levers Valeant can sustainably pull to come up with this on my own.

 

I personally think this is in my "too hard" pile to judge what these assets are worth in Valeant's hands. That's just me. Someone else may think differently. That's what makes a market.

I never said they issued equity.  I said they need to be well regarded to finance (however they do it whether debt or equity) their acquisitions AND for their target to not mount an Allergan-type of campaign.  There is far less overlap between the group that reads the Wall Street Journal AND run a nutrition club than between journal readers and the people in a position to make decisions that impact valeant (financiers, regulators, management and boards at acquisition targets, PBMs, Insurers, hospital administrators etc).

 

The debt is still dependent on sentiment.  as for using stock - biovail (maybe since that was the transformative beginning it doesn't count)plus they have tried to use equity with Allergan.  The option to use stock is gone.  Certainly that optionality had not insignificant  latent value?

 

zenaidamacroura, you didn't say Valeant issued equity. I was responding to jaygatsby's comment: "Presented with an overpriced valuation he went on a buying binge using that stock as currency."

Oh my bad -the perils of reading on the iPhone at the dentist's office.

[JayGatsby]

zenaidamacroura, you didn't say Valeant issued equity. I was responding to jaygatsby's comment: "Presented with an overpriced valuation he went on a buying binge using that stock as currency."

Oh my bad -the perils of reading on the iPhone at the dentist's office.

My misstatement. One more reason why I should watch this one from the sidelines. I still think it will be interesting to look back on this in 10 years. Debt or equity, he's used cheap acquisition currency for what still appears to be for benefit of shareholders (300% gains in 5 years). If the strategy works he's a genius, if it doesn't he's a crook. I suspect he's at least one of those, potentially both.

[rishig]

zenaidamacroura, you didn't say Valeant issued equity. I was responding to jaygatsby's comment: "Presented with an overpriced valuation he went on a buying binge using that stock as currency."

Oh my bad -the perils of reading on the iPhone at the dentist's office.

My misstatement. One more reason why I should watch this one from the sidelines. I still think it will be interesting to look back on this in 10 years. Debt or equity, he's used cheap acquisition currency for what still appears to be for benefit of shareholders (300% gains in 5 years). If the strategy works he's a genius, if it doesn't he's a crook. I suspect he's at least one of those, potentially both.

 

I am not sure I would measure "value" addition the way you described. Buffett says value is created when $1 of investment produces more than $1 in return.

 

Current scoreboard shows that Pearson over his tenure invested $40B (using debt out of which $30B still sits on balance sheet) and has produced a company that is worth $25B in market cap. Valeant's book value when Pearson took over was negligible compared to $30 billion, so let's ignore that. And all of this happened over 6-7 years.

 

Is taking in $30B in debt + negligible equity and creating a company that is today worth $25B in market cap over 6-7 years considered value creation? If you measure just the growth in equity has obviously been phenomenal, but couldn't anyone that takes on a large amount of debt do the same? It is considered valuable if you take on $30B in debt and then create a company that is far more valuable than the $30B you took on (or pay off all the debt and have some significant pile left over as equity).

 

May be that will happen if given time (although I think it is "too hard" to tell, hence in my "too hard" pile) and at best, the jury is still out on this question in my opinion.

[cayale]

Me thinks that Ruane Cuniff blew out its whole position yesterday.

[stahleyp]

Why do you think that?

[Picasso]

First time their fund value didn't move with the fluctuation of VRX.

[sampr01]

First time their fund value didn't move with the fluctuation of VRX.

 

May be other holdings compensated for VRX gains (4%) on Friday and now VRX is 26% of their fund. I briefly looked at the top holdings (>1%) and most of them are down except for VRX and MA on Friday.

[cayale]

Why do you think that?

 

And the volume was enormous. Someone liquidated.