VRX - Valeant Pharmaceuticals International Inc.

[original mungerville]

You guys make it sound like it was obvious now. I think the short thesis was severely flawed and remains so - they got lucky, in my opinion, to a large degree with the California lawsuit re Philidor. This did, however, uncovered real problems with Valeant's business model / aggressiveness / sustainability.

Why do you think this thread is so big? Not because everybody was believing the story, exactly because there were big questions about certain aspects of VRX business do we have one of the longest threads on CoBF. This is as obvious as it gets probably. How many threads about a company are on this board with a poll on the first page asking whether or not the company is a fraud?!!??!

 

And yes, I don't think everything is AZ values piece was equally correct. But calling him lucky is a bit extreme isn't it? He saw smoke because there were big problems with the companies business model / aggressiveness / sustainability. If it would not have been Philidor it would have been something else that was generating that smoke.

 

In my opinion, many of you are confusing AZ Value's (ie Hempton's in disguise) shit analysis with the above. I had the extra bias having dealt with Hempton in the past and seeing the type of crap he tries to make stick passing it as certainty / good analysis. That history, along with not picking up on the fact that the decentralised model / aggressiveness combination could really backfire is what caught me off guard.

And you are still being totally paranoid about Hempton's involvement. If there would be a good way to make it happen I would very happily bet a lot of money on the fact that it isn't him. And even if it would be him you would have been smart to listen. He has a great track record shorting questionable companies! There is no way I would want to be at the opposite of his trades unless I have really done my homework. And trusting management guidance and taking a leap of faith isn't doing your homework... and lets be realistic, with a stock this complicated that it the only thing that small investors really could do. That's why I lot of people didn't want to invest, myself included!

 

Great for you. And you will miss a lot of great opportunities if you can't trust any management.

 

"How many threads about a company are on this board with a poll on the first page asking whether or not the company is a fraud?!!??!"

 

Answer: Fairfax Financial circa 2001-2005 - the name of the board!. So tell me again why I should listen to you and your perspective on AZ Value?

[arcube]

Given the number of times the word for human excreta is being used in this thread lately, I am equating this stock with $#@% going forward. lol ; ) and I am calling the CEO a giant ^%$DBall.  ;D

[original mungerville]

Given the number of times the word for human excreta is being used in this thread lately, I am equating this stock with $#@% going forward. lol ; ) and I am calling the CEO a giant ^%$DBall.  ;D

 

Yes, this could indeed be the case - in which case Ackman is going to get slaughtered.

[wescobrk]

Maybe i'm an idiot, but at $61 a share, I bought a little.

It might be a binary bet, if it survives, should be a nice rebound within 6 months.

[ni-co]

Given the number of times the word for human excreta is being used in this thread lately, I am equating this stock with $#@% going forward. lol ; ) and I am calling the CEO a giant ^%$DBall.  ;D

 

Yes, this could indeed be the case - in which case Ackman is going to get slaughtered.

 

I think he's really going to regret this bet: http://www.bloombergview.com/articles/2015-11-24/bill-ackman-found-a-cheap-way-to-buy-more-valeant-stock (at least the sale of the puts below 60 to fund the calls).

[adesigar]

Hillary targets Valeant

 

 

I'm sorry if this was posted earlier.

 

 

[scorpioncapital]

Wouldn't it be strange if the stock Ackman went long (VRX) goes to zero and the stock he went short (HLF) goes to the moon :) One markets drugs for when you get sick, the other markets nutritional supplements and herbs to try to keep you healthy.

[Picasso]

Hillary targets Valeant

 

 

I'm sorry if this was posted earlier.

 

This is just so awesome.  She straight out singles out Valeant and says "I'm going after them!"

 

I mean how do you discount that risk as a shareholder?  If this isn't waterboarding I don't know what is....

[original mungerville]

By the way, Lou Simpson, Ackman, Sequoia, etc, etc probably all also read AZ Value's blog.

 

You guys make it sound like it was obvious now. I think the short thesis was severely flawed and remains so - they got lucky, in my opinion, to a large degree with the California lawsuit re Philidor. This did, however, uncovered real problems with Valeant's business model / aggressiveness / sustainability.

 

In my opinion, many of you are confusing AZ Value's (ie Hempton's in disguise) shit analysis with the above. I had the extra bias having dealt with Hempton in the past and seeing the type of crap he tries to make stick passing it as certainty / good analysis. That history, along with not picking up on the fact that the decentralised model / aggressiveness combination could really backfire is what caught me off guard. I thought the debt was the main risk, which if combined with a screw-up, could really cause problems - which is why I bought the calls rather than the stock from the beginning.

 

I certainly did not "anchor" on AZ Value's shit IRR calculations - trust me. I was trying to point out to the board that the guy was being as aggressive with his "analysis" as Pearson was with the business. Again, every hedge fund, Lou Simpson, Ackman, Sequoia, etc also looked at that analysis...

 

Last but not least, at this point there could be another problem that comes out and the stock could decline significantly, or not and all the bad stuff is out and the stock could double or even triple from here in a few years (assuming the stock market holds together). We just don't know.

 

So you bought into the company knowing that a small problem would derail them under the debt load, and AZ Value has a shit analysis? I guess a call option makes it different. Somehow.

 

No, I bought into the company understanding my upside was about 5 times my downside with the call options. AZ Value's analysis did not alter my stance. If the probability of success was greater than 20%, it was a good bet. If the probability of success was less than 20%, it was a bad bet.

 

God I hope you don't manage other people's money.

 

I sure as shit wouldn't manage yours if you begged me to.

 

And by the way, the OPM I advise on is up double digits on average, beating the market, since 2005 with NO down years including 2008/09. Moreover, its up in the last 6 months and beating the index even with the Valeant hit.

[Picasso]

By the way, if this stock drops through $60 it will most likely drop like a stone.  Ackman never thought in a million years that he would be put that stock... The market is going to have its way with him if it goes through that level.

[LC]

Jeeze this is ridiculous. There's literally thousands of companies to look at and some people just get their jaws clenched on one thing and won't let go.

 

 

 

[original mungerville]

Yup, Ackman is going to be in big trouble if this continues. On top of all that, he went big on all these other platform companies many of which rely on debt/junk debt to finance expansion, etc. Its a big gamble when buying and selling options on Valeant as well. Valeant was actually my macro hedge (correct view) with a micro screw-up (my incorrect analysis). Ackman seems like he went all-in on the macro side with his only hedge being a short on the Yuan. It seems too concentrated. Actually Ray Dalio alluded to this concentration this fall when he responded to Ackman on some panel they were on together - but Ackman didn't seem to take it into consideration. Anyone catch that?

[Picasso]

LC, my wife doesn't let me look at porn anymore so this is the closest thing I've got. 

[Guest Schwab711]

By the way, Lou Simpson, Ackman, Sequoia, etc, etc probably all also read AZ Value's blog.

 

You guys make it sound like it was obvious now. I think the short thesis was severely flawed and remains so - they got lucky, in my opinion, to a large degree with the California lawsuit re Philidor. This did, however, uncovered real problems with Valeant's business model / aggressiveness / sustainability.

 

In my opinion, many of you are confusing AZ Value's (ie Hempton's in disguise) shit analysis with the above. I had the extra bias having dealt with Hempton in the past and seeing the type of crap he tries to make stick passing it as certainty / good analysis. That history, along with not picking up on the fact that the decentralised model / aggressiveness combination could really backfire is what caught me off guard. I thought the debt was the main risk, which if combined with a screw-up, could really cause problems - which is why I bought the calls rather than the stock from the beginning.

 

I certainly did not "anchor" on AZ Value's shit IRR calculations - trust me. I was trying to point out to the board that the guy was being as aggressive with his "analysis" as Pearson was with the business. Again, every hedge fund, Lou Simpson, Ackman, Sequoia, etc also looked at that analysis...

 

Last but not least, at this point there could be another problem that comes out and the stock could decline significantly, or not and all the bad stuff is out and the stock could double or even triple from here in a few years (assuming the stock market holds together). We just don't know.

 

So you don't care about capital preservation? 5:1 bet with 20% probability of success assumes infinite capital is available, since there are surely higher probability bets available with equivalent risk/reward profiles (20% was completely Pollyanna pre-philidor and VRX was never at 5:1 at $200 or so).

 

If you knew investors and Pearson were being aggressive, why didn't you admit as much before everything came out? Similarly, how were flaws in the business model revealed after philidor? Those issues were and still are the short case.

 

The Fairfax event occurred 13+ years ago and is not comparable in the first place. Can we let it go? It's as baseless as comparing VRX to BRK

[original mungerville]

So with this Hillary thing, Valeant is now an election bet and at the mercy of the rating agencies to a significant degree. They better produce major cash flow.

 

In related news, Kevin O'Leary seems to think equities/pharma will do well because Hillary will lose!!

 

http://www.cnbc.com/2016/02/29/donald-trump-will-be-president-and-stocks-will-rally-oleary.html

 

 

[original mungerville]

By the way, Lou Simpson, Ackman, Sequoia, etc, etc probably all also read AZ Value's blog.

 

You guys make it sound like it was obvious now. I think the short thesis was severely flawed and remains so - they got lucky, in my opinion, to a large degree with the California lawsuit re Philidor. This did, however, uncovered real problems with Valeant's business model / aggressiveness / sustainability.

 

In my opinion, many of you are confusing AZ Value's (ie Hempton's in disguise) shit analysis with the above. I had the extra bias having dealt with Hempton in the past and seeing the type of crap he tries to make stick passing it as certainty / good analysis. That history, along with not picking up on the fact that the decentralised model / aggressiveness combination could really backfire is what caught me off guard. I thought the debt was the main risk, which if combined with a screw-up, could really cause problems - which is why I bought the calls rather than the stock from the beginning.

 

I certainly did not "anchor" on AZ Value's shit IRR calculations - trust me. I was trying to point out to the board that the guy was being as aggressive with his "analysis" as Pearson was with the business. Again, every hedge fund, Lou Simpson, Ackman, Sequoia, etc also looked at that analysis...

 

Last but not least, at this point there could be another problem that comes out and the stock could decline significantly, or not and all the bad stuff is out and the stock could double or even triple from here in a few years (assuming the stock market holds together). We just don't know.

 

So you don't care about capital preservation? 5:1 bet with 20% probability of success assumes infinite capital is available, since there are surely higher probability bets available with equivalent risk/reward profiles (20% was completely Pollyanna pre-philidor and VRX was never at 5:1 at $200 or so).

 

If you knew investors and Pearson were being aggressive, why didn't you admit as much before everything came out? Similarly, how were flaws in the business model revealed after philidor? Those issues were and still are the short case.

 

The Fairfax event occurred 13+ years ago and is not comparable in the first place. Can we let it go? It's as baseless as comparing VRX to BRK

 

Schwab,

 

I care about probability adjusted returns for various positions which in aggregate will produce good results spread across an entire portfolio. I said the calls had 5:1 upside:downside, not the stock.

 

Please don't talk to me about preservation of capital. The OPM I advise is up double digits every year since 2005 with no down years including 2008/9 and the last 6-9 months which include the Valeant hit.

 

I said the debt was my concern and that, combined with a screw-up, would really send the stock down. The screw-up was me underestimating the risk in their business model from imbedded aggressiveness - I think due to compensation arrangements in a decentralised business combined with pressure on far flung managements to deliver.

 

Its very very comparable to Fairfax 13 years ago. I am not clinging, I am just explaining that that is one reason I went wrong on this one. If you don't think its comparable, then that's fine, don't compare it.

[ander]

Covenants.  I read and searched through the historical posts - I see the several mentions re: $5 Billion EBITDA and then there being potential issues.  Has anyone summarized what the exact debt covenants are by any chance?

[Guest Grey512]

LC, my wife doesn't let me look at porn anymore so this is the closest thing I've got.

 

Me too. Sad face.

[Guest Grey512]

By the way, if this stock drops through $60 it will most likely drop like a stone.  Ackman never thought in a million years that he would be put that stock... The market is going to have its way with him if it goes through that level.

 

Today the stock bottom-ticked $60.06 at 1pm Eastern.. And then shot straight back up!!! This is just cray.

[Picasso]

I show a $59.87 low.  It's like the game just went back into overtime and I'm sitting here on the edge of my seat.... Can you imagine being Ackman right now?  He's 1-4% away from complete disaster and there isn't anything he can do except sell.  The only saying grace is that these are euro style options but he needs to start coming up with the collateral on a lot of shares...

[LC]

LC, my wife doesn't let me look at porn anymore so this is the closest thing I've got.

 

Who needs all that when you've got this:

 

http://www.canadianbusiness.com/wp-content/uploads/2015/12/66-michael-pearson-08661185-ryan-remiorz-cpimages.jpg

[Guest Grey512]

I show a $59.87 low.  It's like the game just went back into overtime and I'm sitting here on the edge of my seat.... Can you imagine being Ackman right now?  He's 1-4% away from complete disaster and there isn't anything he can do except sell.  The only saying grace is that these are euro style options but he needs to start coming up with the collateral on a lot of shares...

 

And how is he gonna do that? By selling stuff like General Growth, Zoetis, PAH, presumably..

This is beginning to feel like Q3/Q4 2015 all over again.

[philly value]

Has Ackman's options positions changed since this? http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/11/ackman%20vrx%20again.jpg

 

Not sure I understand the reasoning behind thinking something magical happens at $60. I count puts on 9.12mm shares that are still outstanding, of which 82K are at $70 and the rest at $60 strike.

 

 

[ni-co]

Has Ackman's options positions changed since this? http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/11/ackman%20vrx%20again.jpg

 

Not sure I understand the reasoning behind thinking something magical happens at $60. I count puts on 9.12mm shares that are still outstanding, of which 82K are at $70 and the rest at $60 strike.

 

We can't know but it's improbable. Buying back those puts now will cost him a lot of money if he finds a seller at all.

[philly value]

Has Ackman's options positions changed since this? http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/11/ackman%20vrx%20again.jpg

 

Not sure I understand the reasoning behind thinking something magical happens at $60. I count puts on 9.12mm shares that are still outstanding, of which 82K are at $70 and the rest at $60 strike.

 

We can't know but it's improbable. Buying back those puts now will cost him a lot of money if he finds a seller at all.

 

No doubt he is in a potentially very tough position if the stock falls further. My point being that nothing technical should be expected to happen at $60.00. It's an expensive position to exit with VRX @ $61.00 and that doesn't change materially at $59.87.