VRX - Valeant Pharmaceuticals International Inc.

[Guest Grey512]

I'm out the common stock short and was looking to express a short view via put options. Last I looked, strike $35 Jan 2018 puts cost just under $7. I was waiting for them to drop to $5 before buying. Thanks a lot, VRX. Once the market opens, the puts will probably go to $10. Miffed that I did not pull the trigger on the puts.

 

 

[tylerdurden]

Stock trades around $52 now. What happens to Ackman's options? Do they get exercised automatically below 60?

[AzCactus]

This saga is like the opposite of the Drake song, "started from the bottom now we're here."

[Ross812]

Valeant just issued a correction:

 

In the news release, Valeant Pharmaceuticals Reports Preliminary Unaudited Fourth Quarter 2015 Financial Information, issued 15-Mar-2016 by Valeant Pharmaceuticals International, Inc. over PR Newswire, we are advised by the Company that under the "Next Four Quarters (Second Quarter 2016 - First Quarter 2017) Guidance" section, the third bullet should read "Adjusted EBITDA (non-GAAP) expected to be ~$6.0 billion" rather than "Adjusted EBITDA (non-GAAP) expected to be ~$6.2 - $6.6 billion" as originally issued inadvertently.

 

It is almost like they are trying to tank this...

[Picasso]

Of course they're trying to tank this.  Today's "Outsiders" destroy their shareholders to initiate buyback programs on the cheap.  Real second level thinker, this Pearson fellow.

[Guest Grey512]

Wow. My screen is showing $42. I wonder how many funds will start gating their investors once Q1 fund letters come out.

[ni-co]

Wow. My screen is showing $42. I wonder how many funds will start gating their investors once Q1 fund letters come out.

 

According to Matt Levine's calculation Ackman is ~$3.5bn in the red with his VRX position.

[Rasputin]

Since I've been working with $5 B EBITDA assumption, the guidance today isn't surprising to me.  I think it's a testament to VRX business strength that even under powerful attacks, it can still generate $5.7 B of EBITDA.

 

I quintupled my position today as my limit orders triggered, bought all the way down to $40 so far today.  Valuation wise, $40 for VRX is similar to $5-$6 for BAC. 

[TwoCitiesCapital]

Of course they're trying to tank this.  Today's "Outsiders" destroy their shareholders to initiate buyback programs on the cheap.  Real second level thinker, this Pearson fellow.

 

 

+1

[Guest Grey512]

Since I've been working with $5 B EBITDA assumption, the guidance today isn't surprising to me.  I think it's a testament to VRX business strength that even under powerful attacks, it can still generate $5.7 B of EBITDA.

 

I quintupled my position today as my limit orders triggered, bought all the way down to $40 so far today.  Valuation wise, $40 for VRX is similar to $5-$6 for BAC.

 

Talk about a binomial outcome... By the time the Aug 2018 debentures come due, either you make $$$$$ and retire to the Bahamas, or the investment is a zero.

[Rasputin]

Since I've been working with $5 B EBITDA assumption, the guidance today isn't surprising to me.  I think it's a testament to VRX business strength that even under powerful attacks, it can still generate $5.7 B of EBITDA.

 

I quintupled my position today as my limit orders triggered, bought all the way down to $40 so far today.  Valuation wise, $40 for VRX is similar to $5-$6 for BAC.

 

Talk about a binomial outcome... By the time the Aug 2018 debentures come due, either you make $$$$$ and retire to the Bahamas, or the investment is a zero.

 

It maybe binomial to you, not to me.  Even with $5.7 B EBITDA, they generate over $3 B in fcf (this year there is almost $1 B in contingent pay that won't be repeated next year). 

[Hielko]

Of course they're trying to tank this.  Today's "Outsiders" destroy their shareholders to initiate buyback programs on the cheap.  Real second level thinker, this Pearson fellow.

 

 

+1

The interesting part of this thread is that I'm never quite sure if people are serious or just being sarcastic.

[Guest Grey512]

Since I've been working with $5 B EBITDA assumption, the guidance today isn't surprising to me.  I think it's a testament to VRX business strength that even under powerful attacks, it can still generate $5.7 B of EBITDA.

 

I quintupled my position today as my limit orders triggered, bought all the way down to $40 so far today.  Valuation wise, $40 for VRX is similar to $5-$6 for BAC.

 

Talk about a binomial outcome... By the time the Aug 2018 debentures come due, either you make $$$$$ and retire to the Bahamas, or the investment is a zero.

 

It maybe binomial to you, not to me.  Even with $5.7 B EBITDA, they generate over $3 B in fcf (this year there is almost $1 B in contingent pay that won't be repeated next year).

 

Out of curiosity... how do you calculate the $3b FCF?

If FCF (I assume your number is levered FCF) is $3-4b, then roughly speaking it would take the company 8-10 years to pay down its outstanding debt. That does not concern you?

[coc]

Since I've been working with $5 B EBITDA assumption, the guidance today isn't surprising to me.  I think it's a testament to VRX business strength that even under powerful attacks, it can still generate $5.7 B of EBITDA.

 

I quintupled my position today as my limit orders triggered, bought all the way down to $40 so far today.  Valuation wise, $40 for VRX is similar to $5-$6 for BAC.

 

Talk about a binomial outcome... By the time the Aug 2018 debentures come due, either you make $$$$$ and retire to the Bahamas, or the investment is a zero.

 

It maybe binomial to you, not to me.  Even with $5.7 B EBITDA, they generate over $3 B in fcf (this year there is almost $1 B in contingent pay that won't be repeated next year).

 

Out of curiosity... how do you calculate the $3b FCF?

If FCF (I assume your number is levered FCF) is $3-4b, then roughly speaking it would take the company 8-10 years to pay down its outstanding debt. That does not concern you?

 

And if I can add to this, if they truly have over $3B in free cash flow coming this year, why do they only plan to pay back $1.7 billion in debt? What could they possibly be spending $1.3 billion on that would be more important than repaying debt?

[Rasputin]

Since I've been working with $5 B EBITDA assumption, the guidance today isn't surprising to me.  I think it's a testament to VRX business strength that even under powerful attacks, it can still generate $5.7 B of EBITDA.

 

I quintupled my position today as my limit orders triggered, bought all the way down to $40 so far today.  Valuation wise, $40 for VRX is similar to $5-$6 for BAC.

 

Talk about a binomial outcome... By the time the Aug 2018 debentures come due, either you make $$$$$ and retire to the Bahamas, or the investment is a zero.

 

It maybe binomial to you, not to me.  Even with $5.7 B EBITDA, they generate over $3 B in fcf (this year there is almost $1 B in contingent pay that won't be repeated next year).

 

Out of curiosity... how do you calculate the $3b FCF?

If FCF (I assume your number is levered FCF) is $3-4b, then roughly speaking it would take the company 8-10 years to pay down its outstanding debt. That does not concern you?

 

It's on slide 20 of their presentation.  Remove the contingent payment and you'll get to over $3 B.

 

2nd question is funny to me.  Without debt, assuming $5.7 B ebitda in 2024 (8 years from now), VRX fcf will be $4.3 B (higher taxes since there is no interest expense) or close to $12 per share.  What kind of multiple the market would place on a debt free VRX?  1 X fcf?  10 X fcf? 

[Rasputin]

Since I've been working with $5 B EBITDA assumption, the guidance today isn't surprising to me.  I think it's a testament to VRX business strength that even under powerful attacks, it can still generate $5.7 B of EBITDA.

 

I quintupled my position today as my limit orders triggered, bought all the way down to $40 so far today.  Valuation wise, $40 for VRX is similar to $5-$6 for BAC.

 

Talk about a binomial outcome... By the time the Aug 2018 debentures come due, either you make $$$$$ and retire to the Bahamas, or the investment is a zero.

 

It maybe binomial to you, not to me.  Even with $5.7 B EBITDA, they generate over $3 B in fcf (this year there is almost $1 B in contingent pay that won't be repeated next year).

 

Out of curiosity... how do you calculate the $3b FCF?

If FCF (I assume your number is levered FCF) is $3-4b, then roughly speaking it would take the company 8-10 years to pay down its outstanding debt. That does not concern you?

 

And if I can add to this, if they truly have over $3B in free cash flow coming this year, why do they only plan to pay back $1.7 billion in debt? What could they possibly be spending $1.3 billion on that would be more important than repaying debt?

 

gosh i think this is the last question i'm answering today lol.

 

They have close to $1 B contingent payment in 2016 that won't be repeated. 

[randomep]

Of course they're trying to tank this.  Today's "Outsiders" destroy their shareholders to initiate buyback programs on the cheap.  Real second level thinker, this Pearson fellow.

 

 

+1

The interesting part of this thread is that I'm never quite sure if people are serious or just being sarcastic.

 

My thoughts exactly. Now Pearson isn't a significant shareholder, if he is tanking the stock, he could be tanking himself out of a job too!

[dbuch]

Out of curiosity... how do you calculate the $3b FCF?

If FCF (I assume your number is levered FCF) is $3-4b, then roughly speaking it would take the company 8-10 years to pay down its outstanding debt. That does not concern you?

 

$6B EBITDA less $1.5B interest less $300M taxes less $300M CapEx = $3.9B FCF on a normalized basis. This is probably low on a normal basis given the disruption in their business but assuming that is run rate they could pay $12B of debt down in three years. Every billion paid down also saves $50M in interest expense. In Three years you would have a 3x debt to ebitda levered company which is not outrageous. If you valued it at 10x FCF at that point it would be $115 stock for a 43% IRR. I think this is draconian and the company will be valued much higher on higher FCF at that point.

 

I think it comes down to whether you believe the products are durable or not. If you think these are cliff based pharmaceuticals with a 10yr life then the $2B of D&A is a real expense and should be deducted from FCF as cash flow will have to be replaced. If you think they have a more durable portfolio then you probably believe the D&A should not be counted.

 

My thoughts are the stock is tanking on lower guidance but also the 10k delay and possibility that debt holders push them into BK which I think is very unlikely to happen. A fire sale of assets would not be in debtholders best interest.

 

 

[coc]

Since I've been working with $5 B EBITDA assumption, the guidance today isn't surprising to me.  I think it's a testament to VRX business strength that even under powerful attacks, it can still generate $5.7 B of EBITDA.

 

I quintupled my position today as my limit orders triggered, bought all the way down to $40 so far today.  Valuation wise, $40 for VRX is similar to $5-$6 for BAC.

 

Talk about a binomial outcome... By the time the Aug 2018 debentures come due, either you make $$$$$ and retire to the Bahamas, or the investment is a zero.

 

It maybe binomial to you, not to me.  Even with $5.7 B EBITDA, they generate over $3 B in fcf (this year there is almost $1 B in contingent pay that won't be repeated next year).

 

Out of curiosity... how do you calculate the $3b FCF?

If FCF (I assume your number is levered FCF) is $3-4b, then roughly speaking it would take the company 8-10 years to pay down its outstanding debt. That does not concern you?

 

And if I can add to this, if they truly have over $3B in free cash flow coming this year, why do they only plan to pay back $1.7 billion in debt? What could they possibly be spending $1.3 billion on that would be more important than repaying debt?

 

gosh i think this is the last question i'm answering today lol.

 

They have close to $1 B contingent payment in 2016 that won't be repeated.

 

Thanks. Sincere word to the wise: Be careful of that feeling like you're the only one that knows what's going on. I've seen many people ride that feeling into the dust. This is an enormously complicated situation with many variables changing at once. It seems to me that the CEO himself is struggling to figure it out. I wish you luck, though - no dog in the fight here.

[Patmo]

Since I've been working with $5 B EBITDA assumption, the guidance today isn't surprising to me.  I think it's a testament to VRX business strength that even under powerful attacks, it can still generate $5.7 B of EBITDA.

 

I quintupled my position today as my limit orders triggered, bought all the way down to $40 so far today.  Valuation wise, $40 for VRX is similar to $5-$6 for BAC.

 

I'm curious what your position size is. Also what will you do if share price goes down to  10 with no change in the business?

[Guest Grey512]

Out of curiosity... how do you calculate the $3b FCF?

If FCF (I assume your number is levered FCF) is $3-4b, then roughly speaking it would take the company 8-10 years to pay down its outstanding debt. That does not concern you?

 

$6B EBITDA less $1.5B interest less $300M taxes less $300M CapEx = $3.9B FCF on a normalized basis. This is probably low on a normal basis given the disruption in their business but assuming that is run rate they could pay $12B of debt down in three years. Every billion paid down also saves $50M in interest expense. In Three years you would have a 3x debt to ebitda levered company which is not outrageous. If you valued it at 10x FCF at that point it would be $115 stock for a 43% IRR. I think this is draconian and the company will be valued much higher on higher FCF at that point.

 

I think it comes down to whether you believe the products are durable or not. If you think these are cliff based pharmaceuticals with a 10yr life then the $2B of D&A is a real expense and should be deducted from FCF as cash flow will have to be replaced. If you think they have a more durable portfolio then you probably believe the D&A should not be counted.

 

My thoughts are the stock is tanking on lower guidance but also the 10k delay and possibility that debt holders push them into BK which I think is very unlikely to happen. A fire sale of assets would not be in debtholders best interest.

 

No offense but the way you calculate FCF is a bit of a BS-ey way to do that. It's BS, pure BS.    For a second, just forget about EBITDA. Just go to the cash flow statement.

And with regards to your musing about an appropriate multiple for the business - given VRX's pricing practices, VRX's distribution practices, regulatory scrutiny as well as the unsustainable state of American healthcare spending & entitlements, why would 10x be the multiple that a knowledgeable counterparty would be fine with paying?

[Guest Grey512]

By the way, my estimate of normalized levered FCF is $2.0b. I take the current Q4 cash from ops, subtract some capex, subtract stock comp, and annualize. That gets you to about $2.0b. If you add $1b of Rasputin's "non-recurring contingency fee", then levered FCF is $3.0b.

 

 

 

[PatientCheetah]

What is your upside target now? There are now so many investors that are underwater. It is likely to be a volatile stock similar to ASPS - every bounce is likely to be sold.

[Picasso]

It's what we call "the long con."  Rampant insurance fraud, pissing off politicians, misleading analysts, losing $3.5 billion for your most vocal and biggest shareholder, typos in press releases, revising guidance down in the billions a few times over a few months.... All just clever ploys to buy in on the super cheap.

 

If VRX goes to $10, they can retire 100% of their shares with free cash flow.  A go private with Pearson as the only shareholder!  Clearly Pearson is savvy enough to realize this having been in bed thinking for a couple months on an epic come back. 

 

The rest of you guys are too short term in your thinking.  Pearson is a real long-term investor.

[PatientCheetah]

That's ingenious - since it has no hope in the short term to revive its acquisition driven growth model, the next best thing is to milk its existing cash flow while trying to get the biggest slice of pie possible. It is already levered like a LBO. Go private and then come back in a few years a billionaire.