VRX - Valeant Pharmaceuticals International Inc.

[ZenaidaMacroura]

More on debt: Someone asks if they have drawn on their revolver.

 

Yes, the company says. The current revolver draw is $845 million, but they plan to pay it off along with the broader pay-down of debt. Pearson says the revolver is first priority on paying down debt, but it sounds as if it won’t be done this year. Sounds like they used it to fund some of the past year’s acquisitions.

 

Their $1.5b revolver was unused on 10/19/2015. So as they talk about paying off debt they have increased it by ~$1b.

 

What would they need to draw on this?

 

 

Also interesting on the call:

Questions coming in about the impact on the dermatology business. Pearson said it’s filling prescriptions for free for now, something that it’s only going to do for a short time as it sorts this out. That will have a short-term impact on its own, but sales haven’t shown a hit… yet. Pearson says he expects some decline.

Sprout payment -Pearson inferred this plus some of the other small acquisitions announced but didn't close until late in the Q

[Guest Schwab711]

 

I totally agree with 1) through 6) however re 7) just because i) the Philidor channel is toast and ii) earnings will come down on Marathon it doesn't mean the whole business is toast. I think they could have mid single digit organic growth without Philidor and Marathon and hit mid teens cash EPS over the next two years (eg, $13 to $17 per share). I don't get the impression that they are going to just crawl under a rock now and not compete.

 

VRX showed SSS growth of $236.3m ($1,315.4m - $1,079.1m) in 3Q15. The largest y/y gains came from:

* $93m (39.4%) from Jublia

* $17m (7.2%) from Xenazine - generic now available as of 4Q15 ("Impact from generic Xenazine expected fully in fourth quarter")

* $12m (5.1%) from Solodyn - generic now available as of 4Q15

* $23m (9.7%) from Retin-A Franchise - sold through Philidor

* $20m (8.5%) from Ofloxacin Otic - Eye drops with single largest price increase (part of govn't subpoena)

* $16m (6.8%) from Cuprimine - Wilson's Disease drug (NYT article - govn't subpoena)

* $14m (5.9%) from Clindagel - sold through Philidor

* $12m (5.1%) from Wellbutrin XL - the only unaffected drug that is growing (currently benefiting from issues with generic versions not owned by VRX)

 

I did not cherry-pick these drugs. These are literally the only drugs that had >$10m y/y revenue growth in VRX's top-30 (3Q15).

 

In total, 82.5% of VRX's 3Q15 SSS growth came from drugs affected by one of the recent "cockroaches". Exuding these drugs, SSS growth would have been 2.3%, more than 100% due to Wellbutrin XL and some other derma drugs (which fits neatly within my earlier -3% to 3% range, calculated through a different method).

 

All future organic growth will be due to Salix (and Xifaxan's delayed DTC campaign).

[100 Shares]

 

I totally agree with 1) through 6) however re 7) just because i) the Philidor channel is toast and ii) earnings will come down on Marathon it doesn't mean the whole business is toast. I think they could have mid single digit organic growth without Philidor and Marathon and hit mid teens cash EPS over the next two years (eg, $13 to $17 per share). I don't get the impression that they are going to just crawl under a rock now and not compete.

 

VRX showed SSS growth of $236.3m ($1,315.4m - $1,079.1m) in 3Q15. The largest y/y gains came from:

* $93m (39.4%) from Jublia

* $17m (7.2%) from Xenazine - generic now available as of 4Q15 ("Impact from generic Xenazine expected fully in fourth quarter")

* $12m (5.1%) from Solodyn - generic now available as of 4Q15

* $23m (9.7%) from Retin-A Franchise - sold through Philidor

* $20m (8.5%) from Ofloxacin Otic - Eye drops with single largest price increase (part of govn't subpoena)

* $16m (6.8%) from Cuprimine - Wilson's Disease drug (NYT article - govn't subpoena)

* $14m (5.9%) from Clindagel - sold through Philidor

* $12m (5.1%) from Wellbutrin XL - the only unaffected drug that is growing (currently benefiting from issues with generic versions not owned by VRX)

 

I did not cherry-pick these drugs. These are literally the only drugs that had >$10m y/y revenue growth in VRX's top-30 (3Q15).

 

In total, 82.5% of VRX's 3Q15 SSS growth came from drugs affected by one of the recent "cockroaches". Exuding these drugs, SSS growth would have been 2.3%, more than 100% due to Wellbutrin XL and some other derma drugs (which fits neatly within my earlier -3% to 3% range, calculated through a different method).

 

All future organic growth will be due to Salix (and Xifaxan's delayed DTC campaign).

 

A few comments... I do think the raw observations are good but I think the conclusions you draw are not quite as bad as you want them to be.

 

I am not going to go line by line through each item, everyone can do their own research and come to their own conclusions. But for the naive people that will take what you posted at full value, I have some comments.

 

First off, you are looking at overall organic growth for the US, but then for product sales you have global sales. Jublia is sold in Canada, Wellbutrin is a global drug, etc. by doing this you're inflating the percentages of organic growth that they did relative to the whole. These are purely fictional numbers, but let's say as you pointed out 83% growth came from these drugs, well after you remove non-US sales from the numerator (because they shouldn't be there if the denominator is only US) then that number may shrink to 60% (again purely fictional) thus showing there are actually more sales growth from other drugs not listed.

 

Second, just because some of these drugs are involved in the common controversy, doesn't mean their growth is gone. For example Jublia grew from $13 to $106. MP said about 50% of Jublia flows through speciality pharmacy. So even if you take a 50% haircut (assuming all those sales can't be moved to a new channel, which is likely far from the case) then there is still organic growth of ~50M which would add a few percentage points of organic growth to your -3 to 3% that you calculate in your alternative method which I am still unclear what that method is.

 

These are just a few comments from quickly looking at it, I am sure there is probably more.

 

[Guest roark33]

FYI: http://www.wsj.com/articles/express-scripts-cutting-off-pharmacy-that-sold-drugs-from-horizon-pharma-1447212233

 

VRX wants to set up a new speciality channel with only a contractual relationship, which is what HZNP had with Linden, but even that is getting shut down.  If the drugs cannot stand on their own, these pharma companies are going to be in trouble.  That's why VRX was able to buy a lot of these tuck-in type acquisitions on the cheap--they drugs are basically worthless on a value-added basis in comparison to their generic equivalents. 

[rpadebet]

They felt comfortable with it then, not sure why they feel uncomfortable with it now if they felt okay using $16 of cash EPS in that last letter.  Unless you want to debate whether high end of comfortable means comfortable or not.  They should have sold out some of their position if they felt uncomfortable, especially with it trading for 3-4x the cost of acquisitions.  The pressure to lower debt now seems silly if they believe the business is A-OK.

 

Let's say Valeant drops the debt burden by $3 billion in 2016 and then again in 2017.  Alright so in 2018 there will be debt of $24 billion.  Do you really think people will look at that and be like "oh cool, there isn't a lot of debt anymore let's buy the stock."  Are the rating agencies going to give them an investment grade rating?  Those two things seems really unlikely.

 

All these guys (Pearson, Pershing, Sequoia) are a lot smarter and better paid than I am, so maybe you should trust their judgement on reducing the debt instead.  I just don't see they they reconcile "Valeant lives on" with "too much debt."  The pieces don't fit for me.

 

Maybe it's just me, but on today's call, it appeared that Mike Pearson wasn't personally thrilled about this new focus on solely paying down debt. It is just my hunch, but it feels this was forced on him by Sequoia or Pershing.

 

As for Sequoia, I think they are traditional investors in the sense that they feel high debt is risky even for a good business because things can always go wrong. If there is a theme to all VRX troubles, it is that they are extremely aggressive in everything they do, including pushing debt to its mathematical limits.

 

It is also possible that Sequoia feels if VRX is able to demonstrate that their cash eps is indeed available to pay down debt for a year or two, then that particular question raised by VRX adversaries again and again, could be finally put to rest. This could lead to more confidence in the business model and sustainable valuation in the future. In the long run, that could me more valuable to the owners.

[Guest Schwab711]

 

I totally agree with 1) through 6) however re 7) just because i) the Philidor channel is toast and ii) earnings will come down on Marathon it doesn't mean the whole business is toast. I think they could have mid single digit organic growth without Philidor and Marathon and hit mid teens cash EPS over the next two years (eg, $13 to $17 per share). I don't get the impression that they are going to just crawl under a rock now and not compete.

 

VRX showed SSS growth of $236.3m ($1,315.4m - $1,079.1m) in 3Q15. The largest y/y gains came from:

* $93m (39.4%) from Jublia

* $17m (7.2%) from Xenazine - generic now available as of 4Q15 ("Impact from generic Xenazine expected fully in fourth quarter")

* $12m (5.1%) from Solodyn - generic now available as of 4Q15

* $23m (9.7%) from Retin-A Franchise - sold through Philidor

* $20m (8.5%) from Ofloxacin Otic - Eye drops with single largest price increase (part of govn't subpoena)

* $16m (6.8%) from Cuprimine - Wilson's Disease drug (NYT article - govn't subpoena)

* $14m (5.9%) from Clindagel - sold through Philidor

* $12m (5.1%) from Wellbutrin XL - the only unaffected drug that is growing (currently benefiting from issues with generic versions not owned by VRX)

 

I did not cherry-pick these drugs. These are literally the only drugs that had >$10m y/y revenue growth in VRX's top-30 (3Q15).

 

In total, 82.5% of VRX's 3Q15 SSS growth came from drugs affected by one of the recent "cockroaches". Exuding these drugs, SSS growth would have been 2.3%, more than 100% due to Wellbutrin XL and some other derma drugs (which fits neatly within my earlier -3% to 3% range, calculated through a different method).

 

All future organic growth will be due to Salix (and Xifaxan's delayed DTC campaign).

 

A few comments... I do think the raw observations are good but I think the conclusions you draw are not quite as bad as you want them to be.

 

I am not going to go line by line through each item, everyone can do their own research and come to their own conclusions. But for the naive people that will take what you posted at full value, I have some comments.

 

First off, you are looking at overall organic growth for the US, but then for product sales you have global sales. Jublia is sold in Canada, Wellbutrin is a global drug, etc. by doing this you're inflating the percentages of organic growth that they did relative to the whole. These are purely fictional numbers, but let's say as you pointed out 83% growth came from these drugs, well after you remove non-US sales from the numerator (because they shouldn't be there if the denominator is only US) then that number may shrink to 60% (again purely fictional) thus showing there are actually more sales growth from other drugs not listed.

 

Second, just because some of these drugs are involved in the common controversy, doesn't mean their growth is gone. For example Jublia grew from $13 to $106. MP said about 50% of Jublia flows through speciality pharmacy. So even if you take a 50% haircut (assuming all those sales can't be moved to a new channel, which is likely far from the case) then there is still organic growth of ~50M which would add a few percentage points of organic growth to your -3 to 3% that you calculate in your alternative method which I am still unclear what that method is.

 

These are just a few comments from quickly looking at it, I am sure there is probably more.

 

You make some good points I didn't address. To clarify, I think the goal of my post is to project future growth. We are adjusting actual organic growth based on future assumptions. These future assumptions did not occur in 3Q15. I was not trying to imply that these growth adjustments will provide a more accurate view of what has happened, just a better view of what I think will happen. I'm open to refinement of the idea.

 

Wellbutrin isn't included in the 82.5%, but your argument stands for the 2.3% comment I made. However, actual non-US revenue is <-15% for both DM and EM. I cannot prove all of Wellbutrin's growth occurred in the US but it is reasonably plausible.

 

In general, readers can make their own rev estimates for the above drugs to adjust the 2.3% growth estimate. Your argument for Jublia could be extended to Xenazine and Solodyn, which now have generic competition. Instead of flat growth, I could have assumed large decreases in revenue for each,  which may more than offset Jublia's ~$50m gain. I'm all for improving these estimates but I didn't have the time to attempt to do so. I think assuming flat overall growth [for these drugs] is conservative (ex-Salix).

 

Worth noting that non-US DM rev is just 12.7% of total rev in 3Q15 with -16% y/y (pre-FX adj). It's impossible to estimate CAD Jublia sales but I don't think they were material. Maybe we could lower 82.5% to ~70-75% to again be conservative (assumes ~$20m to $30m non-US DM rev for all of the above drugs; which is mainly Jublia). This excludes Wellbutrin and the 2 derma drugs with $9m increases y/y. The rest of the drugs included are either derm or have immediate generic competition.

 

Finally, to balance my comment that 2.3% US growth is driven by Wellbutrin (which may be inaccurate for the reasons you mentioned), I didn't include at least 2 derma drugs that accounted for $18m in rev growth (missed >$10m cut-off) which are also affected by the specialty pharma issues. I could have made my point more dramatic by using a >$9m cut-off instead of >$10m (again, I was trying to be conservative).

 

If the US raises rates then the dollar will likely further strength relative to global currencies (not to involve macro calls). I was just trying to point out that  US organic growth may be much lower moving forward (ex-Salix). Actual revenue ex-US is down across the board -15%. Combined, 4Q15 and FY16 results may be much lower than is currently projected.

[Peregrino]

Have they ever disclosed what percent of sales runs through traditional pharmacies (CVS, Walgreens, Rite Aid, Walmart, Target) and hospitals/mom and pops versus all "other channels"?

 

Seems that would be a more relevant statistic to provide than simply saying there's nothing else "like Philidor" out there.

[Happy]

I agree that Sequoia wanted them to be less levered for a long time and guess that they accepted it because Pearson delivered results and now that his position is weakened and there is much more uncertainty they expect him to comply with their wishes and pay down a good amount of debt first so the company can ride out the storm.

[jay21]

They felt comfortable with it then, not sure why they feel uncomfortable with it now if they felt okay using $16 of cash EPS in that last letter.  Unless you want to debate whether high end of comfortable means comfortable or not.  They should have sold out some of their position if they felt uncomfortable, especially with it trading for 3-4x the cost of acquisitions.  The pressure to lower debt now seems silly if they believe the business is A-OK.

 

Let's say Valeant drops the debt burden by $3 billion in 2016 and then again in 2017.  Alright so in 2018 there will be debt of $24 billion.  Do you really think people will look at that and be like "oh cool, there isn't a lot of debt anymore let's buy the stock."  Are the rating agencies going to give them an investment grade rating?  Those two things seems really unlikely.

 

All these guys (Pearson, Pershing, Sequoia) are a lot smarter and better paid than I am, so maybe you should trust their judgement on reducing the debt instead.  I just don't see they they reconcile "Valeant lives on" with "too much debt."  The pieces don't fit for me.

 

One last time. If you do not understand their covenants and relationship with their bankers, then you do not know what financial flexibility they have. TL holders can be pretty persistent about getting paid when the company's spreads are widening.

[Liberty]

The focus on debt was probably pushed by some of the big shareholders. I think the message was probably something like: Now's not the time to optimize per-share returns by a few percents by shrinking share outstanding, now is the time to regain confidence by showing that the model works and the balance sheet is solid.

 

Buying back debt on the secondary market at 80 cents on the dollar might not be the highest potential return, but it is a very certain return, which has benefits when there's a lot of uncertainty.

[original mungerville]

They felt comfortable with it then, not sure why they feel uncomfortable with it now if they felt okay using $16 of cash EPS in that last letter.  Unless you want to debate whether high end of comfortable means comfortable or not.  They should have sold out some of their position if they felt uncomfortable, especially with it trading for 3-4x the cost of acquisitions.  The pressure to lower debt now seems silly if they believe the business is A-OK.

 

Let's say Valeant drops the debt burden by $3 billion in 2016 and then again in 2017.  Alright so in 2018 there will be debt of $24 billion.  Do you really think people will look at that and be like "oh cool, there isn't a lot of debt anymore let's buy the stock."  Are the rating agencies going to give them an investment grade rating?  Those two things seems really unlikely.

 

All these guys (Pearson, Pershing, Sequoia) are a lot smarter and better paid than I am, so maybe you should trust their judgement on reducing the debt instead.  I just don't see they they reconcile "Valeant lives on" with "too much debt."  The pieces don't fit for me.

 

Look, no question you have a point. If they want debt leverage below say 3 or 3.5x EBITDA going forward, then they need to either a) pay down debt (but as you note above it will take time to materially pay down) or b) make acquisitions where the price paid plus restructuring costs is a multiple that is significantly lower than 3 to 3.5x EBITDA. So I would imagine they will be looking at a combination of these things which would imply acquirees with stable revenues and low multiples (ie which probably implies lower organic growth acquirees) will be their initial focus. Tuck-in type acquisitions could generate organic growth however as you take these acquirees (with low organic growth on a stand-alone basis) and distribute through a larger global organisation. Basically, all that to say, I see debt repayment and tuck-ins going forward in order to delever.

 

Now, you could be too pessimistic on your remaining organic growth assumption. For example, what if we see EBITDA in 2016 of $7 billion and 2017 of $7.7. This means if they get debt down to $23 billion, they would be levered 3x to EBITDA which I think is at the low end of the range they are targeting (I am guessing they are targeting 3-3.5x with Pearson closer to 3.5x and the more conservative large investors closer to 3x) 

[original mungerville]

I totally agree with Ackman's comment that what Coke does is immoral. They put sugar-water with caffeine into dispensing machines in schools to hook kids early on. Frankly I have always found that practice disgusting from an ethical standpoint. Now you can't blame Buffett and Munger for not understanding this as diet and physical fitness is clearly not a strong suit of theirs.

 

http://www.bloomberg.com/news/articles/2015-11-11/ackman-answers-munger-valeant-critique-blames-coke-for-obesity

 

I am not saying what the pharma business does is any better though, its probably worse. But I sure as hell don't see Munger making a fuss about Coke's immoral practices.

[original mungerville]

The worst thing you can do to your diet is drink sugar (including fruit juice), but Coke takes the practice to a whole new level (more sugar, plus caffeine and trying to hook kids early). So I generally agree with Ackman's view :

 

“Coca-Cola has probably done more to create obesity and diabetes on a global basis than any other company in the world,” Mr. Ackman said. The company, he said, has “displaced the water that children and adults consume with sugar water.”

 

“I have a problem with Bekshire’s ownership of Coke,” he said, in response to a question about whether he’d found himself on the opposite side of a trade from Berkshire. “Coca-Cola is a company that I wouldn’t own.”

 

But he acknowledged that sometimes investing decisions aren’t clear cut, pointing to his hedge-fund’s ownership of snack-food company Mondelez International Inc.MDLZ +0.44%

 

“Everything in moderation,” he said. “It’s complicated.”

 

He justified Pershing’s investment in Mondelez by saying that it’s “okay to have a chocolate bar or Oreo cookie” once in a while, and the maker of Oreo cookies wasn’t trying to replace “your grilled chicken with Oreos.” By comparison, he said, Coke’s business model was to “displace water with sugar water.”

 

But Mr. Ackman joked that one person who seems rather impervious to overconsumption of sugar is Mr. Buffett, who drinks several Cherry Cokes per day.

 

“He told me that he hadn’t had water since the mid 1950s.”

 

http://blogs.wsj.com/moneybeat/2015/11/11/ackman-fires-back-at-munger-says-coke-has-damaged-society/

 

 

[cmlber]

The worst thing you can do to your diet is drink sugar (including fruit juice), but Coke takes the practice to a whole new level (more sugar, plus caffeine and trying to hook kids early). So I generally agree with Ackman's view :

 

“Coca-Cola has probably done more to create obesity and diabetes on a global basis than any other company in the world,” Mr. Ackman said. The company, he said, has “displaced the water that children and adults consume with sugar water.”

 

“I have a problem with Bekshire’s ownership of Coke,” he said, in response to a question about whether he’d found himself on the opposite side of a trade from Berkshire. “Coca-Cola is a company that I wouldn’t own.”

 

But he acknowledged that sometimes investing decisions aren’t clear cut, pointing to his hedge-fund’s ownership of snack-food company Mondelez International Inc.MDLZ +0.44%

 

“Everything in moderation,” he said. “It’s complicated.”

 

He justified Pershing’s investment in Mondelez by saying that it’s “okay to have a chocolate bar or Oreo cookie” once in a while, and the maker of Oreo cookies wasn’t trying to replace “your grilled chicken with Oreos.” By comparison, he said, Coke’s business model was to “displace water with sugar water.”

 

But Mr. Ackman joked that one person who seems rather impervious to overconsumption of sugar is Mr. Buffett, who drinks several Cherry Cokes per day.

 

“He told me that he hadn’t had water since the mid 1950s.”

 

http://blogs.wsj.com/moneybeat/2015/11/11/ackman-fires-back-at-munger-says-coke-has-damaged-society/

 

I said this like 40 pages ago.  Coca Cola provides absolutely no value to society and makes 2x as much money as Valeant.

[merkhet]

The worst thing you can do to your diet is drink sugar (including fruit juice), but Coke takes the practice to a whole new level (more sugar, plus caffeine and trying to hook kids early). So I generally agree with Ackman's view :

 

“Coca-Cola has probably done more to create obesity and diabetes on a global basis than any other company in the world,” Mr. Ackman said. The company, he said, has “displaced the water that children and adults consume with sugar water.”

 

“I have a problem with Bekshire’s ownership of Coke,” he said, in response to a question about whether he’d found himself on the opposite side of a trade from Berkshire. “Coca-Cola is a company that I wouldn’t own.”

 

But he acknowledged that sometimes investing decisions aren’t clear cut, pointing to his hedge-fund’s ownership of snack-food company Mondelez International Inc.MDLZ +0.44%

 

“Everything in moderation,” he said. “It’s complicated.”

 

He justified Pershing’s investment in Mondelez by saying that it’s “okay to have a chocolate bar or Oreo cookie” once in a while, and the maker of Oreo cookies wasn’t trying to replace “your grilled chicken with Oreos.” By comparison, he said, Coke’s business model was to “displace water with sugar water.”

 

But Mr. Ackman joked that one person who seems rather impervious to overconsumption of sugar is Mr. Buffett, who drinks several Cherry Cokes per day.

 

“He told me that he hadn’t had water since the mid 1950s.”

 

http://blogs.wsj.com/moneybeat/2015/11/11/ackman-fires-back-at-munger-says-coke-has-damaged-society/

 

I don't want to derail this thread, but I have to point out my favorite part of that article. (bolded, underlined and italicized above)

 

I was having a conversation with another board member offline about this, and he said that Ackman's Burger King defense is that he sees Burger King as a market more than a junk food outfit because people can choose to buy a salad from Burger King. People can choose to buy a Dasani rather than a Coke! How is that different?

 

(For what it's worth, I think too much sugar is bad for you, but the hypocrisy is just too overwhelming.)

 

When it comes to Ackman, I think this picture is appropriate:

 

http://cdn.meme.am/instances/500x/54245314.jpg

[tylerdurden]

I totally agree with Ackman's comment that what Coke does is immoral. They put sugar-water with caffeine into dispensing machines in schools to hook kids early on. Frankly I have always found that practice disgusting from an ethical standpoint. Now you can't blame Buffett and Munger for not understanding this as diet and physical fitness is clearly not a strong suit of theirs.

 

http://www.bloomberg.com/news/articles/2015-11-11/ackman-answers-munger-valeant-critique-blames-coke-for-obesity

 

I am not saying what the pharma business does is any better though, its probably worse. But I sure as hell don't see Munger making a fuss about Coke's immoral practices.

 

So it is becoming even more obvious what a looser Ackman is to me. I don't see the comparison between Valeant and Coke as you guys do. Ok Coke is not selling healthiness to the masses for sure but at the end consuming their products is a matter of choice for adults or the parents of any kid. If you don't want your kid consume soda, just try to seed good habits into him/her starting from early age. I know it is not easy always but at the end it is our choice. On the other hand, pharma sales are much more opaque from consumer standpoint. We are not doctors obviously so we have to depend on others making good decisions on behalf of us and If there are companies out there which are screwing us and/or our insurance companies in partnership with the docs then there is really nothing much you can do about it as a consumer so it really does not depend on your free will or choice. (Insurance companies paying more is not good for the consumer either bcs you are paying that drug's excessive price with your increased insurance premium every year.) Anyways, this would be a main difference for me between two different companies/sectors on this topic.

[sampr01]

I don't understand all the hate and derogatory comments towards Ackman (here and social media). I really like him because he reveals all research info, rationale behind his stock picks to public, reveals his conversations with management and answers specific questions regarding the company. This approach is very different from some of CoBF favorites like Pabrai and Buffet etc. He is a human being makes investment mistakes like everyone else, but you need respect his approach. Sorry for off topic comment

[tylerdurden]

I don't understand all the hate and derogatory comments towards Ackman (here and social media). I really like him because he reveals all research info, rationale behind his stock picks to public, reveals his conversations with management and answers specific questions regarding the company. This approach is very different from some of CoBF favorites like Pabrai and Buffet etc. He is a human being makes investment mistakes like everyone else, but you need respect his approach. Sorry for off topic comment

 

I am sorry but I do not respect his approach at this point. If you invest into companies like Mondelez, Burger King and then since Munger speaks his mind plainly as usual about Valeant, attacking BKH because of their investment in Coke does not flourish any respect for him in me. First look at what you invest and then accuse others in terms of immorality. It's a very cheap shot at people who you try to use in terms of your defense in Valeant as an example (his amex example).

[sampr01]

I don't understand all the hate and derogatory comments towards Ackman (here and social media). I really like him because he reveals all research info, rationale behind his stock picks to public, reveals his conversations with management and answers specific questions regarding the company. This approach is very different from some of CoBF favorites like Pabrai and Buffet etc. He is a human being makes investment mistakes like everyone else, but you need respect his approach. Sorry for off topic comment

 

I am sorry but I do not respect his approach at this point. If you invest into companies like Mondelez, Burger King and then since Munger speaks his mind plainly as usual about Valeant, attacking BKH because of their investment in Coke does not flourish any respect for him in me. First look at what you invest and then accuse others in terms of immorality. It's a very cheap shot at people who you try to use in terms of your defense in Valeant as an example (his amex example).

 

Ackman is NOT  attacking BRK, he is just responding to the Munger's comment about the immoral to raise prices. Why can't same  principle apply to Munger or Buffet. They can buy companies or invest in companies and raise prices or fire people to make lean companies  (Heinz and Kraft) or loan money to the companies when they distressed at very attractive terms than regular investor (BAC, GE or Goldman Sach's investment). They want to make money to their shareholder's and Nothing more to it. You can't talk about morality when you are an investor. I admire buffet because of his Philanthropy and investment acumen.

[original mungerville]

The worst thing you can do to your diet is drink sugar (including fruit juice), but Coke takes the practice to a whole new level (more sugar, plus caffeine and trying to hook kids early). So I generally agree with Ackman's view :

 

“Coca-Cola has probably done more to create obesity and diabetes on a global basis than any other company in the world,” Mr. Ackman said. The company, he said, has “displaced the water that children and adults consume with sugar water.”

 

“I have a problem with Bekshire’s ownership of Coke,” he said, in response to a question about whether he’d found himself on the opposite side of a trade from Berkshire. “Coca-Cola is a company that I wouldn’t own.”

 

But he acknowledged that sometimes investing decisions aren’t clear cut, pointing to his hedge-fund’s ownership of snack-food company Mondelez International Inc.MDLZ +0.44%

 

“Everything in moderation,” he said. “It’s complicated.”

 

He justified Pershing’s investment in Mondelez by saying that it’s “okay to have a chocolate bar or Oreo cookie” once in a while, and the maker of Oreo cookies wasn’t trying to replace “your grilled chicken with Oreos.” By comparison, he said, Coke’s business model was to “displace water with sugar water.”

 

But Mr. Ackman joked that one person who seems rather impervious to overconsumption of sugar is Mr. Buffett, who drinks several Cherry Cokes per day.

 

“He told me that he hadn’t had water since the mid 1950s.”

 

http://blogs.wsj.com/moneybeat/2015/11/11/ackman-fires-back-at-munger-says-coke-has-damaged-society/

 

I don't want to derail this thread, but I have to point out my favorite part of that article. (bolded, underlined and italicized above)

 

I was having a conversation with another board member offline about this, and he said that Ackman's Burger King defense is that he sees Burger King as a market more than a junk food outfit because people can choose to buy a salad from Burger King. People can choose to buy a Dasani rather than a Coke! How is that different?

 

(For what it's worth, I think too much sugar is bad for you, but the hypocrisy is just too overwhelming.)

 

When it comes to Ackman, I think this picture is appropriate:

 

http://cdn.meme.am/instances/500x/54245314.jpg

 

That's why I pasted the whole thread because the part you bolded is somewhat contradictory. Regardless, I don't like Coke's practice of preying on kids early in their lives with sugar water and caffeine in large quantities - especially in schools. School should be a place where kids can only get healthy foods, it should be a place for education and nurture of mind and body.

[original mungerville]

I don't understand all the hate and derogatory comments towards Ackman (here and social media). I really like him because he reveals all research info, rationale behind his stock picks to public, reveals his conversations with management and answers specific questions regarding the company. This approach is very different from some of CoBF favorites like Pabrai and Buffet etc. He is a human being makes investment mistakes like everyone else, but you need respect his approach. Sorry for off topic comment

 

I am sorry but I do not respect his approach at this point. If you invest into companies like Mondelez, Burger King and then since Munger speaks his mind plainly as usual about Valeant, attacking BKH because of their investment in Coke does not flourish any respect for him in me. First look at what you invest and then accuse others in terms of immorality. It's a very cheap shot at people who you try to use in terms of your defense in Valeant as an example (his amex example).

 

I agree with both of you: I respect Ackman for his openness but at the same time he has to learn when to keep his mouth shut in many situations. It is not the place or setting to take a shot at Munger (even though I too don't like some of Coke's practices) as my understanding is that they were supposed to be honouring Berkshire or value investing or something along those lines.

[ccplz]

 

I said this like 40 pages ago.  Coca Cola provides absolutely no value to society and makes 2x as much money as Valeant.

 

How do they make money if the provide no value whatsoever to society?

 

 

[Picasso]

http://www.bloomberg.com/news/articles/2015-11-11/coca-cola-says-ackman-remarks-on-obesity-are-irresponsible-

 

Ackman sure knows how to make friends. 

 

http://www.bloomberg.com/news/articles/2015-11-11/valeant-creditors-spooked-by-possibility-of-revenue-squeeze

[FiveSigma]

 

I said this like 40 pages ago.  Coca Cola provides absolutely no value to society and makes 2x as much money as Valeant.

 

How do they make money if the provide no value whatsoever to society?

 

How do tobacco companies make money if they provide no value whatsoever to society?

[jay21]

Valeant risks violating its credit agreements and triggering a technical default on its senior debt next year if its Ebitda -- earnings before interest, taxes, depreciation and amortization -- over a 12-month period aren’t enough to cover its interest expense at least three times.

 

The company’s interest-coverage ratio was 3.6 times for the 12 months that ended Sept. 30, Valeant said on the call Tuesday. It posted Ebitda of $5.7 billion for that period, according to Michael Levesque, an analyst at Moody’s Investors Service.

 

“We were already seeing uncomfortable closeness to covenant limits before anything blew up,” Bryan said. “I have to assume that covenant pressure is only going to increase.”

 

http://www.bloomberg.com/news/articles/2015-11-11/valeant-creditors-spooked-by-possibility-of-revenue-squeeze