Graham Osborn Posted February 26, 2016 Share Posted February 26, 2016 I'm still short. Do you think VRX is still a good short now? This is not rhetorical - I am honestly curious. Despite being right on the analysis I didn't have the guts to do what I should have done before the big fall, which was short with a protective call. I think I shorted once around 100 but covered not long after. Yet the company gets coming up on my uberlevered shirt screens. If I short it now I'm basically saying I think they can't service their debt. The puts are pricey. I guess I feel leery with so many irons in the fire, but you tell me. Link to comment Share on other sites More sharing options...
Happy Posted February 29, 2016 Share Posted February 29, 2016 http://ir.valeant.com/news-releases/2016/02-28-2016 Pearson is back! Link to comment Share on other sites More sharing options...
CorpRaider Posted February 29, 2016 Share Posted February 29, 2016 Wally Weitz discusses the investment and why he sold it on the latest Wealthtrack. Link to comment Share on other sites More sharing options...
Guest Grey512 Posted February 29, 2016 Share Posted February 29, 2016 I'm still short. protective call I've forgotten what that is. I'm still short. Do you think VRX is still a good short now? This is not rhetorical - I am honestly curious Yes. On a micro level, high likelihood that the business model is broken and corporate governance is skewed. On a macro level, the size and complexity of the US healthcare system and spending are both unsustainable. And the global de-leveraging (whether beautiful or ugly) will impact equity here, and quite negatively. In an environment like the current one, the 'worst' businesses will continue to do poorly. On a selfish level, I want to still have some hedges in my bag and am running out of better shorts because the 40+ names that I was short since 2015 have almost all declined to my target price, so I've closed them out and now I am all out of good shorts. I do want to convert to puts though, but the implied vol here looks a tad high. On a market level, the sell-side has been very dumb when it came to VRX and I think they will eventually catch up and the rose-tinted glasses will drop. Link to comment Share on other sites More sharing options...
Guest roark33 Posted February 29, 2016 Share Posted February 29, 2016 This is a pretty funny interview. This Weitz guy gives a fairly lame, imo, answer about why he sold. He basically says Pearson was doing some sketchy things, but the stock kept going up, so we didn't sell. He sold some due to valuation and the rest after Philidor came out. Link to comment Share on other sites More sharing options...
CorpRaider Posted February 29, 2016 Share Posted February 29, 2016 Yeah probably BS, but I did note the comment about telling the business managers to make their numbers or else. Link to comment Share on other sites More sharing options...
original mungerville Posted February 29, 2016 Share Posted February 29, 2016 Yeah probably BS, but I did note the comment about telling the business managers to make their numbers or else. This is what I fucked up with on this investment. I heard Pearson say that as well and should have realised that that can be a pretty bad way to operate in a decentralised business model. Similarly for Pearson's comp plan - just too aggressive. Link to comment Share on other sites More sharing options...
randomep Posted February 29, 2016 Share Posted February 29, 2016 Yeah probably BS, but I did note the comment about telling the business managers to make their numbers or else. This is what I fucked up with on this investment. I heard Pearson say that as well and should have realised that that can be a pretty bad way to operate in a decentralised business model. Similarly for Pearson's comp plan - just too aggressive. Mungerville, as I recall from the video, Weitz said it was at a dinner of with money managers. Are you saying you were there at the dinner? Link to comment Share on other sites More sharing options...
original mungerville Posted February 29, 2016 Share Posted February 29, 2016 No, I heard him also say that in a presentation or on one of the conference calls. I remember that distinctly - so its not like you had to be at that special dinner to hear that... Link to comment Share on other sites More sharing options...
fareastwarriors Posted March 1, 2016 Share Posted March 1, 2016 Valeant Says It's Under Investigation by SEC, Shares Plunge http://www.bloomberg.com/news/articles/2016-02-29/valeant-is-under-investigation-by-sec-drugmaker-says Link to comment Share on other sites More sharing options...
arcube Posted March 1, 2016 Share Posted March 1, 2016 Valeant Says It's Under Investigation by SEC, Shares Plunge http://www.bloomberg.com/news/articles/2016-02-29/valeant-is-under-investigation-by-sec-drugmaker-says Just saw this as well. What a #$@%show! Shouldn't this have been disclosed besides a normal disclosure in 10K given the unusual circumstances facing this organization. Link to comment Share on other sites More sharing options...
Picasso Posted March 1, 2016 Share Posted March 1, 2016 Are you still long OM? I recall our heated convo over IRR's, seems like ages ago. Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted March 1, 2016 Share Posted March 1, 2016 I hope the SEC investigation moves quickly regardless of the nature of it. Shareholders deserve better than the last 6 months. Does anyone know the CDS prices or how the bonds reacted to the news? Link to comment Share on other sites More sharing options...
Picasso Posted March 1, 2016 Share Posted March 1, 2016 Why do they deserve better than the last six months? These are all self inflicted wounds with plenty of time to get out. Not that they deserve losses but they don't deserve gains either. Take a look at this thread six months ago and how people reacted to the AZ blog. I remember saying that the response made me want to short the stock and a few people made fun of me. Now it's super quiet on here and investors are blaming this train wreck as an operator error but shareholders have stood on the track for months watching it come barreling straight for their faces. Link to comment Share on other sites More sharing options...
fareastwarriors Posted March 1, 2016 Share Posted March 1, 2016 I'm long this baby through my investment in Sequoia Fund. :'( Oh well. Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted March 1, 2016 Share Posted March 1, 2016 Why do they deserve better than the last six months? These are all self inflicted wounds with plenty of time to get out. Not that they deserve losses but they don't deserve gains either. Take a look at this thread six months ago and how people reacted to the AZ blog. I remember saying that the response made me want to short the stock and a few people attacked me. Now it's super quiet on here and investors are blaming this train wreck as an operator error but shareholders have stood on the track for months watching it come barreling straight for their faces. Lol, I'm well aware of how this thread reacted. The majority of this thread was jumping down my throat for continuing AZ's work (remember when VRX missed both of their guidance figures for international revenue?). There were very few bears after AZ's post. But the point is all shareholders deserve honesty or regulator intervention if they invest in US-listed stocks. The SEC should have started this investigation months ago (maybe 2 years ago?). If they did do it at that time then the SEC should have also known that VRX never disclosed it. VRX management is obviously at fault for everything but where was the SEC when all of this was becoming obvious? The SEC frequently waits too long to intervene. Someone correct me if I'm wrong, but in an ideal world I'd like to see a more active SEC. Link to comment Share on other sites More sharing options...
Picasso Posted March 1, 2016 Share Posted March 1, 2016 Honesty probably makes this stock a zero. Shareholders don't want honesty, they want to be let down easy. There's too much debt for honesty. Bonds, first liens all traded like crap. CDS is back near record high 800bps. Link to comment Share on other sites More sharing options...
LC Posted March 1, 2016 Share Posted March 1, 2016 There were very few bears after AZ's post. !!! I was so bearish I'm pretty sure Leo DiCaprio owes me a beer. Link to comment Share on other sites More sharing options...
wescobrk Posted March 1, 2016 Share Posted March 1, 2016 Honesty probably makes this stock a zero. Shareholders don't want honesty, they want to be let down easy. There's too much debt for honesty. Bonds, first liens all traded like crap. CDS is back near record high 800bps. Thanks for the post, Picasso. My immediate question is when do you think it is a zero? That, I think, is very interesting. Thanks. Link to comment Share on other sites More sharing options...
Rasputin Posted March 1, 2016 Share Posted March 1, 2016 I hope more ppl believe VRX is a zero. I added today. Their underlying business is doing well and I believe my $5 B normalized ebitda will prove to be a conservative estimate. Link to comment Share on other sites More sharing options...
muscleman Posted March 1, 2016 Share Posted March 1, 2016 I hope more ppl believe VRX is a zero. I added today. Their underlying business is doing well and I believe my $5 B normalized ebitda will prove to be a conservative estimate. EV/EBITDA is over 13x, higher than most cable companies. Cables are like hard assets that depreciation is not that real, but pharmas may have real depreciation. Do you expect EBITDA to grow quick from here? Why did I use EV/EBITDA ratio? Because there is no earning. Link to comment Share on other sites More sharing options...
Picasso Posted March 1, 2016 Share Posted March 1, 2016 I don't think the stock is a zero if they let investors down easy. It does seem clear to me that economic reality isn't this cash EPS nonsense. Plus interest expense will be a lot higher in the future with the big free cash flow years going towards debt repayment. If you wanted to see how the sausage was made, then this stock is probably a zero. Valeant doesn't want the world to know what's really going on with this business. Ackman probably doesn't want to know himself. But all this back tracking the past few months makes me think Valeant has a lot more than just "6% of revenue" Philidor issues. Here's what I consider honesty: 1) Philidor was much more important than shareholders knew 2) Debt covenants were way too lax with all this amortization expense 3) An asset that goes away in 15 year isn't "durable" 4) There's a stupid amount of cockroaches in the kitchen Now add in all the regulatory, tax, "name your big risk here," all the debt and I don't see how these big shareholders are still talking about cash EPS estimates like they even matter. Lenders aren't going to give a crap about "cash EPS." They want real after-tax cash and now you have to wonder what's going to be left for the equity holders if this recent trend of new cockroaches doesn't turn for the better. We'll see how that Salix acquisition works out and how badly the PBM's single out Valeant. Those are probably the two big "earnings" drivers for 2016/2017. Anyway, my other thought is that pharma isn't that great of a business. Pearson was able to exploit a fair amount of the inefficiency but clearly he took it to a whole new level. Valeant doesn't add any value to the system and now he's made the company a target for anyone who wants to make a career in politics. It would be different if they added more value but he has a giant target painted on Valeant's back. Shares are already down a lot so it's priced a lot of this in. It's what we don't yet know that can really crush the rest of the concentrated holders. Especially Ackman with his naked puts.... Link to comment Share on other sites More sharing options...
original mungerville Posted March 1, 2016 Share Posted March 1, 2016 Are you still long OM? I recall our heated convo over IRR's, seems like ages ago. No, I was out in November - I came to a similar conclusion to Ericopoly. It was so close to the line for me - whether to hold it or sell it or buy more... Then got back in for a bit (few days) on the Walgreens deal then sold that rally (luckily) just under $120 or so (so ended up just being a trade which helped a bit). Valeant (with its high debt load) was both a macro hedge and micro bet on my part. The macro side was the leverage / junk debt, and that they could keep it going in this central bank dominated world of ours as long as faith in the central banks held up (I have been betting against central banks and Valeant was a bit of a macro hedge on my part - ie if I am wrong and the central banks can keep the game going, junk debt will continue to be cheap, market will look the other way and be positive, etc etc and Valeant would have a chance to do a big merger). On the micro side is where it seems I screwed up, it seems Pearson was just too aggressive...but the story isn't finished yet just because the stock is down. (I am surprised it moved this much on an SEC investigation; the SEC? really? - I would be more concerned about the attorney generals, etc over time) My largest position has been precious metals - specifically silver (doing OK in 2016) and gold miners (killing it in 2016). Luckily I had bought calls on Valeant rather than the stock so that limited my losses significantly. Rather than try to make the money back with Valeant stock. I basically sold and went long BRK, short market for a small chunk of my portfolio; and then short the market long gold miners and some silver for the bulk of the portfolio. That didn't work in November/December but then on 1 January 2016, it all changed. I don't want to start a thread on precious metals here, but suffice it to say that is where I put my money when I cut my Valeant losses. In November/December nobody and I mean nobody wanted to touch gold miners. I'll lose a lot more than I lost on Valeant if my precious metals position turns out to be incorrect as well. But that has been my big bet, and will continue to be my big bet - its what I feel most strongly about. Link to comment Share on other sites More sharing options...
original mungerville Posted March 1, 2016 Share Posted March 1, 2016 Why do they deserve better than the last six months? These are all self inflicted wounds with plenty of time to get out. Not that they deserve losses but they don't deserve gains either. Take a look at this thread six months ago and how people reacted to the AZ blog. I remember saying that the response made me want to short the stock and a few people made fun of me. Now it's super quiet on here and investors are blaming this train wreck as an operator error but shareholders have stood on the track for months watching it come barreling straight for their faces. Picasso, the AZ Value blog is still a piece of shit in my view (including the IRR analysis we debated). I haven't changed my opinion on AZ Value - I am pretty sure that that is little Johnny Hempton posing under AZ Value then linking it to his site. That's why I got so pissed about the IRR thing; because Johnny likes to bring other posters in with him - in the beginning, I thought you were one of them - I no longer think that. Link to comment Share on other sites More sharing options...
Picasso Posted March 1, 2016 Share Posted March 1, 2016 By the way, if anyone wants a good laugh go read the PSH letter from December. This letter isn't even a few months old and it's already aged horribly. Almost every part of these thesis is toast so how does someone like Ackman stay long? http://assets.pershingsquareholdings.com/2014/09/Pershing-Square-Holdings-Ltd.-Q3-Investor-Letter1.pdf Here are some clips for the lazy: The company will likely file its 10-K in February with the results of Price Waterhouse’s year-end audit. This should comfort investors who have concerns about Valeant’s accounting. Nope. In light of the above technical factors, we believe that most new investors would prefer to wait to establish an investment in Valeant until after the upcoming analyst day and when year-end technical factors abate. Nope. By the way, what happened to all the "short-term is a misleading way to perceive progress" talk? You might be surprised to see Valeant on our list of companies whose intrinsic value increased this year in light of the controversy around Valeant’s specialty pharmacy distribution channel, regulatory subpoenas, and drug pricing. Really? Guidance withdrawn? We expect that this morning’s announcement will reduce if not eliminate concerns about disruptions in the distribution of Valeant’s dermatology products. We expect that additional uncertainty will begin to dissipate at tomorrow’s analyst day when the company will announce its revenues and earnings guidance for 2016 and answer questions from existing and prospective investors. Again, concerns even greater now and guidance withdrawn. I hate thesis drift and this is just an insane amount of thesis drift. Link to comment Share on other sites More sharing options...
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