Liberty Posted October 27, 2015 Share Posted October 27, 2015 How was Ronald. H Farmer able to buy 1500 shares on October 21, 2015? 21 was the day of the Citron report, right? The company probably hadn't done whatever internal checks/investigation that they now think disproves the claims at the time. I'm sure he was confident in the business, but probably didn't have the new dossier about the integrity of the specialty pharma channel on his bedside table at the time. Now that they have it but haven't been able to make it fully public yet, they can't buy. Just guessing. Link to comment Share on other sites More sharing options...
ourkid8 Posted October 27, 2015 Share Posted October 27, 2015 The Citron report was released on October 21, 2015. (http://www.citronresearch.com/wp-content/uploads/2015/10/Valeant-Part-II-final-d.pdf) I doubt it as he is a board member and privy to Material non-public information hence why I think the article is BS. My guess: he is small fry and so, unlike the exec team, is not privileged to the confidential info. Either that or the article is BS. October 21st is before the short report. That's probably it. Link to comment Share on other sites More sharing options...
original mungerville Posted October 27, 2015 Share Posted October 27, 2015 I doubt it as he is a board member and privy to Material non-public information hence why I think the article is BS. My guess: he is small fry and so, unlike the exec team, is not privileged to the confidential info. Either that or the article is BS. OK, there goes that guess! Maybe the article is BS or he bought ahead of the restriction by the lawyer. Link to comment Share on other sites More sharing options...
original mungerville Posted October 27, 2015 Share Posted October 27, 2015 More from Matt Levine. (As a side note, if you're not getting his daily e-mails to your inbox, you're missing out on some fantastic and humorous finance writing.) http://www.bloombergview.com/articles/2015-10-27/bad-bonuses-and-a-hedge-fund-priest Me yesterday. I wrote about Valeant and Philidor. I worry that I was a little too broad in saying "If you have an option to buy a thing for zero dollars, you own the thing." That is true if the thing is a limited-liability thing -- as corporate stock (theoretically) is -- but actual ownership tends to bring the risk of liabilities that the option (theoretically) avoids. My point was something like: The option structure was meant to avoid the liabilities of actual ownership, but may not have been entirely successful in doing so. I agree with his angle here. The question is how much $ could that cost Valeant 95% of the time? (ie let us not assume an attorney general on a war path that also gets a little lucky in the court proceedings). The issue is if they admit the call options were to protect themselves from legal liability than they admit there was an identified legal liability risk. Yes, but all businesses have legal liability risk so that does not prove that they knew of a real, ongoing legal risk - although I would not be surprised if internal emails revealed that. Link to comment Share on other sites More sharing options...
original mungerville Posted October 27, 2015 Share Posted October 27, 2015 The shorts are preying on your emotions. The company is responding with facts. Emotions will win: Is this a tweet of yours? If not are you on twitter? Thank you, Gio No and no. Marc Cahodes is an infamous short seller. He appears to be friendly with Roddy Boyd and Left. He is not involved directly in VRX but there was some chatter before the bear raid. I like to keep tabs on the shorts. Unlike Left, Marc seems smart. I had forgotten about Marc Cahodes. Ah yes, memories: http://archive.fortune.com/2008/10/10/news/economy/river_boyd.fortune/index.htm Eric, this is FFH all over again, and around the price where you come in and buy a shit ton of call options to take you from $10 million to $50 million. But unlike back then with the FFH options so cheap (because the naked short selling was impacting the call option premiums synthetically making them extremely inexpensive), these f*$% calls are expensive. At least buy a token few for old times sake! I know you are thinking about it... The FFH calls expiring 18 months out were really cheap and the hurricane season would come to an end after the first 4 months or so, at which time the options would likely have risen in value even if a costly hurricane season had come to pass. That's because, as you say, it was the pressure from the synthetic shorts that was driving down the call premiums... so after some post-hurricane covering it would have boosted the value of the calls even if the stock price hadn't budged. It was quite unbelievable how much upside there was given the downside risk. Today there isn't that tailwind in the VRX calls from possible short covering. Instead, it's a headwind that will eat into prospective returns. Agreed. Its not the same deal, the calls have a huge expense that come with them here. Link to comment Share on other sites More sharing options...
KCLarkin Posted October 27, 2015 Share Posted October 27, 2015 OK, there goes that guess! Maybe the article is BS or he bought ahead of the restriction by the lawyer. The odds of the article being B/S are very low. - might have bought before restriction was implemented - might have received legal clearance prior to Oct 21 - might have entered the order prior to Oct 21 (e.g. limit order) But regardless, they are certainly barred from buying now. So the only question is whether they would actually buy, if they are allowed. That part might be b/s. I wonder what this means for ValueAct? Presumably they are barred from buying too. Link to comment Share on other sites More sharing options...
KCLarkin Posted October 27, 2015 Share Posted October 27, 2015 Agreed. Its not the same deal, the calls have a huge expense that come with them here. Not my game, but selling puts might be the better way for an optimist to play the options. Link to comment Share on other sites More sharing options...
ourkid8 Posted October 27, 2015 Share Posted October 27, 2015 http://finance.yahoo.com/news/valeant-architect-bets-drugmaker-returning-190909973.html "But unlike Ackman’s Pershing Square Capital Management, ValueAct has had representatives on Valeant’s board since at least 2007, and is subject to insider trading restrictions. Under the U.S. Securities and Exchange Commission’s 16-B rules aimed at preventing insiders from profiting from non-public information, ValueAct probably can’t acquire additional Valeant shares until almost the end of this year." "Specifically, SEC regulations require a disgorgement of profits if someone on the board or any other insider sells and buys the company’s shares within a restricted period. That in ValueAct’s case is likely mid-December, based on the June disclosure." I wonder what this means for ValueAct? Presumably they are barred from buying too. Link to comment Share on other sites More sharing options...
jay21 Posted October 27, 2015 Share Posted October 27, 2015 The issue is if they admit the call options were to protect themselves from legal liability than they admit there was an identified legal liability risk. Yes, but all businesses have legal liability risk so that does not prove that they knew of a real, ongoing legal risk - although I would not be surprised if internal emails revealed that. Agree - but how many businesses are bought with options with the intent of avoiding legal liability? There's a definite implication that they thought there was a material enough liability to warrant using options to buy the business (assuming they structured the deal to avoid legal liability). It does not prove anything. I think the implication is strong (again making that same assumption, which could be wrong). Link to comment Share on other sites More sharing options...
100 Shares Posted October 27, 2015 Share Posted October 27, 2015 The Citron report was released on October 21, 2015. (http://www.citronresearch.com/wp-content/uploads/2015/10/Valeant-Part-II-final-d.pdf) I doubt it as he is a board member and privy to Material non-public information hence why I think the article is BS. My guess: he is small fry and so, unlike the exec team, is not privileged to the confidential info. Either that or the article is BS. October 21st is before the short report. That's probably it. You are correct. I saw that the purchase prices were 1000 shares at $193 and 500 at $158.79 on dataroma so I assumed these were before the report was released. Just looked up the actual filing and these are Canadian dollars. So yes he purchased 1000 shares before the report and 500 after. At 158 he either bought them right after the report was released or at the end of the day. This doesn't really answer the question raised but it sheds some light. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 27, 2015 Share Posted October 27, 2015 I started reading the VRX thread from the beginning. After the first 14 pages or so, I'm getting tired of this useless idea of expensing intangible writedowns to reduce earnings. Do you guys get similarly excited when Microsoft doesn't write down the invisible intangibles that clearly exist in the product lines that it created in-house? You are trying to create expenses against current and future income merely because there are businesses that were acquired at a premium above book. Here is a suggestion to normalize the books versus a purely organic grower: Just value the company based on it's future distributable eanings. Microsoft spent R&D developing Windows, and the intangible asset value today is way beyond that which was once expensed. So should one argue that goodwill is R&D? Not hardly. And should Microsoft start recording charges against today's income if management believes that the intangible value of Windows is in decline? That wouldn't be helpful. Why expense acquisitions as R&D when the acquired asset could be spun off? Another poor idea. Just focus on estimating the value of the future earnings and don't worry about these strange ideas. Link to comment Share on other sites More sharing options...
Picasso Posted October 28, 2015 Share Posted October 28, 2015 That's the idea of cash EPS versus GAAP EPS. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 28, 2015 Share Posted October 28, 2015 I have a question regarding that: In a wholly-acquired line of business, should management be allowed to record a special boost to earnings by writing up the value of the goodwill? For example, after several years of strong organic growth? Link to comment Share on other sites More sharing options...
Liberty Posted October 28, 2015 Share Posted October 28, 2015 http://www.reuters.com/article/2015/10/27/valeantpharms-valueact-idUSL1N12R22220151027 ValueAct meeting top 10 vrx investors. Link to comment Share on other sites More sharing options...
Picasso Posted October 28, 2015 Share Posted October 28, 2015 Like you said, goodwill is the intangible that results from an acquisition above net assets and it doesn't mean that "acquisition price" was the cost of R&D. It's probably a lot more than the R&D but you have a predictable cash flow versus a shotgun blast of R&D costs and an unknown resulting cash flow. An improvement in goodwill shows up on the cash flow statements by showing organic growth. In theory the value of that intangible asset goes up but you won't see it on the balance sheet unless they sell the asset. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 28, 2015 Share Posted October 28, 2015 Like you said, goodwill is the intangible that results from an acquisition above net assets and it doesn't mean that "acquisition price" was the cost of R&D. It's probably a lot more than the R&D but you have a predictable cash flow versus a shotgun blast of R&D costs and an unknown resulting cash flow. An improvement in goodwill shows up on the cash flow statements by showing organic growth. In theory the value of that intangible asset goes up but you won't see it on the balance sheet unless they sell the asset. I agree. It's enough to just look at the earnings and growth of the business and ignore goodwill completely and any associated discussion -- for if we do that, if we value the business based on it's earnings and prospects, our business valuation will capture the real value of the intangibles. There is basically nothing to be learned from seeing the goodwill on the books or discussing whether or not it will be written down. Link to comment Share on other sites More sharing options...
KCLarkin Posted October 28, 2015 Share Posted October 28, 2015 If I buy a share of XYZ company at 5x book directly on the stock exchange, I don't have any amortization. If I own Valeant instead, and they buy XYZ for 5x book, suddenly my share of XYZ has amortization. My cash flow is exactly the same, but suddenly my share of XYZ is worth less just because I own it via Valeant? My mind just can't understand how that reflects economic reality. Link to comment Share on other sites More sharing options...
original mungerville Posted October 28, 2015 Share Posted October 28, 2015 The issue is if they admit the call options were to protect themselves from legal liability than they admit there was an identified legal liability risk. Yes, but all businesses have legal liability risk so that does not prove that they knew of a real, ongoing legal risk - although I would not be surprised if internal emails revealed that. Agree - but how many businesses are bought with options with the intent of avoiding legal liability? There's a definite implication that they thought there was a material enough liability to warrant using options to buy the business (assuming they structured the deal to avoid legal liability). It does not prove anything. I think the implication is strong (again making that same assumption, which could be wrong). Agree. If it was for competitive (secrecy) purposes only, you would think they would have clearly disclosed that on the call on Monday, but maybe not. Maybe they want Philidor to continue to sell competitors' drugs. I don't know. I am guessing the reason is some sort of regulatory arbitrage (but I can't figure out what) or they effectively wanted the aggression of Philidor without theassociated legal liabilities (in which case, they may end up getting dragged through the mud and pay a fine at the end). Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 28, 2015 Share Posted October 28, 2015 If I buy a share of XYZ company at 5x book directly on the stock exchange, I don't have any amortization. If I own Valeant instead, and they buy XYZ for 5x book, suddenly my share of XYZ has amortization. My cash flow is exactly the same, but suddenly my share of XYZ is worth less just because I own it via Valeant? My mind just can't understand how that reflects economic reality. I know, it's massively stupid. Just for fun, try to compute the "look through" intangible goodwill assets of Fairfax. Then piss on their earnings every now and then by assessing charges to their "look through intangible goodwill" every time Mr. Market changes his mind and lowers the price of the shares in their portfolio. Mr Market changing his mind about the future of their owned shares is really not much different from management changing their minds and writing off goodwill. Makes no sense. Writing down goodwill is a bit like mark-to-market accounting flowing through to earnings, except it's only negative writedowns -- never positive increases. Link to comment Share on other sites More sharing options...
cmlber Posted October 28, 2015 Share Posted October 28, 2015 The issue is if they admit the call options were to protect themselves from legal liability than they admit there was an identified legal liability risk. Yes, but all businesses have legal liability risk so that does not prove that they knew of a real, ongoing legal risk - although I would not be surprised if internal emails revealed that. Agree - but how many businesses are bought with options with the intent of avoiding legal liability? There's a definite implication that they thought there was a material enough liability to warrant using options to buy the business (assuming they structured the deal to avoid legal liability). It does not prove anything. I think the implication is strong (again making that same assumption, which could be wrong). Agree. If it was for competitive (secrecy) purposes only, you would think they would have clearly disclosed that on the call on Monday, but maybe not. Maybe they want Philidor to continue to sell competitors' drugs. I don't know. I am guessing the reason is some sort of regulatory arbitrage (but I can't figure out what) or they effectively wanted the aggression of Philidor without theassociated legal liabilities (in which case, they may end up getting dragged through the mud and pay a fine at the end). But why would Philidor want to give Valeant "the aggression of Philidor"? What would Philidor gain from being aggressive and taking on the very legal liabilities that your explanation assumes Valeant wanted to avoid? Valeant already paid the shareholders of Philidor $100 million for the option, and was indemnified in the amount of that $100 million for any future liability. So why would the owners of Philidor be aggressive to the point of illegality and risk losing that $100 million? If I was the guy who pocketed $100 million I'd be playing by the rules to make damn sure I keep that $100 million. Any appreciation in the value of Philidor goes to Valeant when they exercise their option for $0. That explanation doesn't make sense to me for that reason. Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted October 28, 2015 Share Posted October 28, 2015 If I buy a share of XYZ company at 5x book directly on the stock exchange, I don't have any amortization. If I own Valeant instead, and they buy XYZ for 5x book, suddenly my share of XYZ has amortization. My cash flow is exactly the same, but suddenly my share of XYZ is worth less just because I own it via Valeant? My mind just can't understand how that reflects economic reality. I know, it's massively stupid. Just for fun, try to compute the "look through" intangible goodwill assets of Fairfax. Then piss on their earnings every now and then by assessing charges to their "look through intangible goodwill" every time Mr. Market changes his mind and lowers the price of the shares in their portfolio. Mr Market changing his mind about the future of their owned shares is really not much different from management changing their minds and writing off goodwill. Makes no sense. Writing down goodwill is a bit like mark-to-market accounting flowing through to earnings, except it's only negative writedowns -- never positive increases. Would you add back interest costs to cash flows for valuation purposes? Link to comment Share on other sites More sharing options...
KCLarkin Posted October 28, 2015 Share Posted October 28, 2015 Wow, they have really got the band back together on this one: http://mobile.nytimes.com/2015/10/27/opinion/is-valeant-pharmaceuticals-the-next-enron.html Joe Nocera Andrew Left Roddy Boyd John Hempton The names all sound vaguely familiar. Link to comment Share on other sites More sharing options...
Picasso Posted October 28, 2015 Share Posted October 28, 2015 Whatever you do, don't read the comments on that article. There are even comments on how great Biovail was before Valeant took over. Uh huh.... Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 28, 2015 Share Posted October 28, 2015 If I buy a share of XYZ company at 5x book directly on the stock exchange, I don't have any amortization. If I own Valeant instead, and they buy XYZ for 5x book, suddenly my share of XYZ has amortization. My cash flow is exactly the same, but suddenly my share of XYZ is worth less just because I own it via Valeant? My mind just can't understand how that reflects economic reality. I know, it's massively stupid. Just for fun, try to compute the "look through" intangible goodwill assets of Fairfax. Then piss on their earnings every now and then by assessing charges to their "look through intangible goodwill" every time Mr. Market changes his mind and lowers the price of the shares in their portfolio. Mr Market changing his mind about the future of their owned shares is really not much different from management changing their minds and writing off goodwill. Makes no sense. Writing down goodwill is a bit like mark-to-market accounting flowing through to earnings, except it's only negative writedowns -- never positive increases. Would you add back interest costs to cash flows for valuation purposes? I don't understand. I do have a question for you... would you add back in management's compensation to cash flows? I've been puzzling on that one and I thought you might be able to help. I'm also wondering if the cost of the electricity should be considered an expense. And if severance should be included. Link to comment Share on other sites More sharing options...
KCLarkin Posted October 28, 2015 Share Posted October 28, 2015 Whatever you do, don't read the comments on that article. There are even comments on how great Biovail was before Valeant took over. Uh huh.... Ouch those comments hurt. If you want to meet a really sleazy company, let me introduce you to J&J: http://www.nytimes.com/2015/09/17/opinion/nicholas-kristof-when-crime-pays-jjs-drug-risperdal.html Even though Risperdal wasn’t approved for the elderly, J&J formed a sales force, called ElderCare, with 136 people to market it to seniors. The F.D.A. protested and noted that there were “an excess number of deaths” among the elderly who took the drug. Link to comment Share on other sites More sharing options...
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