VRX - Valeant Pharmaceuticals International Inc.

[original mungerville]

I also like the fact that if the stock market falls significantly, these acquirees will become much cheaper and easier for Valeant to buy.

[ZenaidaMacroura]

Can anyone link where I could see a video of the ackman presentation?

[Spekulatius]

This is actually incredible dealmaking.

 

- Valeant wants to buy Allergan, they team up with Ackman who buys a 10 % stake.

 

 

It's mindboggling how this is not insidertrading. Ackman is clearly trading on non-public information when he bought the the shares.  Personally, I think the downside should be the SEC looking into this, shutting the deal down and jail time for Ackmann.

[fareastwarriors]

This is actually incredible dealmaking.

 

- Valeant wants to buy Allergan, they team up with Ackman who buys a 10 % stake.

 

 

It's mindboggling how this is not insidertrading. Ackman is clearly trading on non-public information when he bought the the shares.  Personally, I think the downside should be the SEC looking into this, shutting the deal down and jail time for Ackmann.

 

 

In Allergan Bid, a Question of Insider Trading

 

http://dealbook.nytimes.com/2014/04/23/in-allergan-bid-a-question-of-insider-trading/?module=BlogPost-Title&version=Blog Main&contentCollection=News Analysis&action=Click&pgtype=Blogs&region=Body

[Bagehot]

This is actually incredible dealmaking.

 

- Valeant wants to buy Allergan, they team up with Ackman who buys a 10 % stake.

 

 

It's mindboggling how this is not insidertrading. Ackman is clearly trading on non-public information when he bought the the shares.  Personally, I think the downside should be the SEC looking into this, shutting the deal down and jail time for Ackmann.

 

If Buffett wants to buy 6% of a stock, he can keep going after he buys 1% even though he is clearly in possession of material nonpublic information, namely the fact that it will soon be disclosed that he is a 5% owner. You can't insider trade on your own intentions, even when those are material. But, you might say, Ackman didn't really trade on his intentions, he traded on the fact that he knew Valeant was going to make an offer. Here's an interesting, but subtle, point about insider trading: trading on material nonpublic info is a necessary but not sufficient condition for an insider trade. To get a conviction you also have to prove a breach of fiduciary trust. It's pretty clear that Ackman didn't breach Valeant's trust since he had a signed agreement with them and they coinvested in his vehicle. The only difference in this, and, say Buffett teaming up with 3G to buy Heinz is that since Allergan was uncooperative, Valeant and Ackman have to do this deal in stages rather than in one fell swoop.

[loganc]

Can anyone speak to the competitive position of the various Valeant product offerings?  I am fully aware of the VRX model (Outsider CEO, etc etc) and the potential accretion within the AGN deal.  Can anyone provide some rational argument as to why any current VRX product has a competitive advantage?  In other words, Slide 16 in the merger deck means absolutely nothing to me as I don't understand the competitive dynamics for these products. 

[Spekulatius]

>> To get a conviction you also have to prove a breach of fiduciary trust<<

 

That is my understanding too, however it is not just fiduciary trust to the directly related party (in this case VRX), it could be any other party whose trust is considered breached (AGN's for example, depending on what information has been exchanged). To me, it seems like Ackman is clearly crossing boundaries. I think the SEC should put this deal on ice and investigate.

[LC]

So one thing about insider trading is that, apparently, if an executive walks up to a random person on the street and screams, "My company XYZ inc is going to buy ABC inc!", and those random strangers trade on that information, that is not insider trading? This is my understanding after Mark Cuban made this point on his blog about a month ago.

[loganc]

>> To get a conviction you also have to prove a breach of fiduciary trust<<

 

That is my understanding too, however it is not just fiduciary trust to the directly related party (in this case VRX), it could be any other party whose trust is considered breached (AGN's for example, depending on what information has been exchanged). To me, it seems like Ackman is clearly crossing boundaries. I think the SEC should put this deal on ice and investigate.

 

Ackman acted within in the law.  Read the following - http://www.bloombergview.com/articles/2014-04-22/bill-ackman-gets-into-the-hostile-takeover-business

[Phaceliacapital]

So one thing about insider trading is that, apparently, if an executive walks up to a random person on the street and screams, "My company XYZ inc is going to buy ABC inc!", and those random strangers trade on that information, that is not insider trading? This is my understanding after Mark Cuban made this point on his blog about a month ago.

 

It's not, I guess it classifies as non material non public information instead of material non public information, I think it becomes material information if Ackman had seen Pearson sign a "we will take you over note" or something...

 

 

[giofranchi]

I wish I had really looked hard into the company when I saw that Sequoia had so much money in it.

 

I think VRX market cap could be somewhat an issue, but much less of an issue than a lot of people think right now.

Much more important imo is that Mr. Pearson still has a 30 years working life in front of him: many tools at his disposal to go on creating value for shareholders.

 

Gio

 

the interesting thing here is that VRX is still not very well known by most investors, and that includes most large investors. so the discovery process is still ahead of it. This combination will ignite their interest. Big investors need to build a trust relationship with a company before they invest. That's why I think the chance for multiple expansion is great. One the key things I've learned in watching markets for almost 30 years is that the big boys move Slow. We have a huge advantage.

 

Yes! I agree.

 

But also do not forget how Mr. Rockfeller truly became the wealthiest man in history: splitting up Standard Oil!

Ok, Mr. Rockfeller might have been somehow forced to do so… And probably he would have never split his company up, if left alone… nonetheless, it worked just wonderfully! And he clearly understood it too! If you read his biography, you will find that, as soon as he heard the news that the injunction by the government to subdivide Standard Oil into many smaller companies had finally become reality, Mr. Rockfeller advised a friend of his, telling him: “Buy the stock!” ;)

 

Contrary to what most people believe, I think each single business VRX has acquired (and will acquire in the future), after Mr. Pearson has applied to it a strict but rationale cost cutting discipline, might turn out to be much more valuable, as a single entity, than it was before VRX acquired it.

 

In other words, when VRX finally gets too big, a tremendous amount of shareholders value could still be generated trough spin-offs.

 

Gio

 

[wbr]

Can anyone link where I could see a video of the ackman presentation?

 

http://www.vpsevent.com/webcast/

[original mungerville]

This proposed merger by Valeant is one of the biggest no-brainers I have ever seen. Its a large integration but ridiculously simple.

 

I am just trying to figure out how much more I should invest - the price is not dirt cheap but it is certainly very very undervalued if the merger goes through.

 

I see zero merger integration risk - its just a matter of this going through which it seems like it will.

[bmichaud]

This is just phenomenal stuff. Assuming the merger goes through, and vrx hits the low end of its growth projection, this thing is an easy multi bagger over five years...assuming a relatively modest multiple.

 

Based on Ackmans "platform value" thesis, I think he thinks it's worth upwards of 25x...

[original mungerville]

I am completely stunned by the CEO. He knows exactly what he wants to do, how he wants to do it, and why.

 

I should have paid more attention to this company 2, 3, 5 years ago. Just unbelievable.

[fareastwarriors]

Legal Memo Defends Ackman’s Actions in Allergan Bid

 

 

 

http://dealbook.nytimes.com/2014/04/24/legal-memo-defends-ackmans-actions-in-allergan-bid/?module=BlogPost-Title&version=Blog Main&contentCollection=Mergers & Acquisitions&action=Click&pgtype=Blogs&region=Body

[ItsAValueTrap]

It seems to me that Valeant's CEO knows that his shares are overvalued and is trying hard to use them to acquire other companies.

[Liberty]

It seems to me that Valeant's CEO knows that his shares are overvalued and is trying hard to use them to acquire other companies.

 

I think it's the opposite. They've been doing most acquisitions mostly with debt, they could easily have issued more stock, and Ackman wanted VRX to put more equity in this deal but VRX wanted to use more debt (and Ackman has elected to take 100% shares if he can get them, so he also thinks it's quite cheap). The current deal is a compromise.

 

Share count is up around 10% in the past 4 years, revenues are up almost 5x.

 

They've bought back a fair amount of stock a few years ago, and the stock price increase since then tracks the operational growth fairly closely (not exactly). If the company can keep executing anywhere close to what they've been doing, and I have no reason to think they can't, the stock isn't overvalued at all.

 

 

[Guest wellmont]

It seems to me that Valeant's CEO knows that his shares are overvalued and is trying hard to use them to acquire other companies.

 

I think it's the opposite. They've been doing most acquisitions mostly with debt, they could easily have issued more stock, and Ackman wanted VRX to put more equity in this deal but VRX wanted to use more debt (and Ackman has elected to take 100% shares if he can get them, so he also thinks it's quite cheap). The current deal is a compromise.

 

They've bought back a fair amount of stock a few years ago, and the stock price increase since then tracks the operational growth fairly closely (not exactly). If the company can keep executing anywhere close to what they've been doing, and I have no reason to think they can't, the stock isn't overvalued at all.

 

vrx is way undervalued if these two combine. it's undervalued as a standalone.

[Liberty]

vrx is way undervalued if these two combine. it's undervalued as a standalone.

 

I don't think it matters that much if this deal doesn't work, because they'll just do another merger of equals later with the same discipline. It doesn't change the strategy, though it would certainly delay it and there's a cost to that.

 

The question is, can they find another company that is as good a fit assets/geographies-wise as AGN? Maybe, maybe not, but maybe something even better could be found... I don't know.

[hardcorevalue]

I love how the CEO isn't a typical pharma guy.

 

Does anybody have any thoughts of the proforma credit worthiness. Valeant is already more indebted than their peers at 3x ebitda interest coverage. Does this company face serious problems if rates move up?

 

As for Ackman's valuation, using PE ratios based on comps which have far less leveraged balance sheets seems a bit like apples to oranges to me.

 

This looks very interesting though, it's just the debt that concerns me.

[original mungerville]

vrx is way undervalued if these two combine. it's undervalued as a standalone.

 

I don't think it matters that much if this deal doesn't work, because they'll just do another merger of equals later with the same discipline. It doesn't change the strategy, though it would certainly delay it and there's a cost to that.

 

The question is, can they find another company that is as good a fit assets/geographies-wise as AGN? Maybe, maybe not, but maybe something even better could be found... I don't know.

 

Exactly. I agree completely. I just made this my largest position. I am late to the party and the price isn't the best but the business model is just too powerful, the CEO just too damn good, and there is still some runway left.

[txlaw]

So, do many of you guys who own VRX also own ENDP? 

 

I don't know much about either of these companies (yet), but would anyone who owns both be willing to explain some key differences between the companies as they exist right now?  Specifically with respect to product portfolios and room for tax arbitrage?

[original mungerville]

Txlaw,

 

ENDP is smaller market cap so easier to do smaller acquisitions and grow.

 

Now that I understand Valeant, I'll take a harder look at ENDP but my instinct is that that CEO is just not going to make me feel as comfortable as the Valeant CEO. I'll see. I mean the Valeant guy, when you look at him, seems like he is falling asleep / about to fall off his chair, but there is an energy in his voice, a determination, I can feel his will to make things happen. And in terms of the content that comes out of his mouth, its bang on.  He seems anchored on the right things for the business.

 

Valeant is very large, and the acquisitions are larger now, and that usually makes things exponentially harder... and that's a big negative...but in this case, the bloody cost savings/integration is just so simple, so simple even at significant scale - and the cost savings are massive. I have never seen anything like this on this scale before. And they are clear about exactly what they are going to do and why. Most $40 billion mergers have huge integration risks, here I see very little - its quite amazing.

 

Having said all this ENDP's CEO may be good enough to extract value at the smaller scale he is working at - after all, this is a fundamentally very simple strategy to execute...I don't know, but the Valeant CEO immediately got my attention.

[LC]

Smaller also means that missteps can do a lot more damage. The mesh lawsuit is more of a concern to me than management...