VRX - Valeant Pharmaceuticals International Inc.

[original mungerville]

can anyone come up with a way i can understand VRX's valuation?

 

http://finance.wikia.com/wiki/Castle-in-the-Air_Theory

http://reflexivityfinance.blogspot.com/2009/01/reflexivity-in-financial-markets-its.html

http://financetrain.com/ma-earnings-per-share-the-bootsrap-effect/

 

;D

 

Why don't you short it? ;)

 

I'm sure that Ackman, Sequoia, ValueAct, Glenn Grenberg, and Lou Simpson are all incapable of doing due diligence and looking through accounting to real economics...

 

Exactly, short it then we'll see if you are still posting happy faces and the same links a few years hence.

[Picasso]

Pretty sure we already saw number 1, but I'd have to scroll back.  If VRX buys ZTS then we just saw number 3.  And it seems like the hedge fund cubs like ACT over VRX for some reason. 

 

Maybe exchange Whitney Tilson for Warren Buffett in number 4 and we got ourselves a nice checklist.

[original mungerville]

can anyone come up with a way i can understand VRX's valuation?

 

http://finance.wikia.com/wiki/Castle-in-the-Air_Theory

http://reflexivityfinance.blogspot.com/2009/01/reflexivity-in-financial-markets-its.html

http://financetrain.com/ma-earnings-per-share-the-bootsrap-effect/

 

;D

 

Why don't you short it? ;)

 

I'm sure that Ackman, Sequoia, ValueAct, Glenn Grenberg, and Lou Simpson are all incapable of doing due diligence and looking through accounting to real economics...

 

I will only short it once

 

1) Gio mentions that Pearson is an entrepreneur and a business man and there are 10 trillion pharma companies out there, ergo stock will provide 15% CAGR in perpetuity

2) 4-5 additional Tiger cubs buy it and trip  over themselves to divine higher price targets than the other

3) Ackman makes at least another billion front running them

4) the company seduces the ultimate unicorn, Warren Buffett

 

If all these happen I will short it. Until then, I'll let those far more knowledgeable and less jocular than I explain why this thang is worth 100 bilskys

 

If it wasn't such a waste of time, the above might be considered amusing. But it is a waste of time, not unlike spam in an email system. Wait, let me post a happy face.... :) there! Or should I wink?  ;)  Wow, lots of fun, and really productive too.

[thepupil]

can anyone come up with a way i can understand VRX's valuation?

 

http://finance.wikia.com/wiki/Castle-in-the-Air_Theory

http://reflexivityfinance.blogspot.com/2009/01/reflexivity-in-financial-markets-its.html

http://financetrain.com/ma-earnings-per-share-the-bootsrap-effect/

 

;D

 

Why don't you short it? ;)

 

I'm sure that Ackman, Sequoia, ValueAct, Glenn Grenberg, and Lou Simpson are all incapable of doing due diligence and looking through accounting to real economics...

 

I will only short it once

 

1) Gio mentions that Pearson is an entrepreneur and a business man and there are 10 trillion pharma companies out there, ergo stock will provide 15% CAGR in perpetuity

2) 4-5 additional Tiger cubs buy it and trip  over themselves to divine higher price targets than the other

3) Ackman makes at least another billion front running them

4) the company seduces the ultimate unicorn, Warren Buffett

 

If all these happen I will short it. Until then, I'll let those far more knowledgeable and less jocular than I explain why this thang is worth 100 bilskys

 

If it wasn't such a waste of time, the above might be considered amusing. But it is a waste of time, not unlike spam in an email system. Wait, let me post a happy face.... :) there! Or should I wink?  ;)  Wow, lots of fun, and really productive too.

 

you are correct. was leaving work and made a joke, but it is precisely the type of trivial bullshit that I myself get frustrated with on this board.

 

I will proactively ban myself from this thread since I have 0 to contribute to analysis of this business (because I literally don't understand it at all). I'll go back to posting on my beloved 60-80 cent dollars that never re-rate and move slower than molasses.

[jawn619]

can anyone come up with a way i can understand VRX's valuation?

 

http://finance.wikia.com/wiki/Castle-in-the-Air_Theory

http://reflexivityfinance.blogspot.com/2009/01/reflexivity-in-financial-markets-its.html

http://financetrain.com/ma-earnings-per-share-the-bootsrap-effect/

 

;D

 

Why don't you short it? ;)

 

I'm sure that Ackman, Sequoia, ValueAct, Glenn Grenberg, and Lou Simpson are all incapable of doing due diligence and looking through accounting to real economics...

 

I will only short it once

 

1) Gio mentions that Pearson is an entrepreneur and a business man and there are 10 trillion pharma companies out there, ergo stock will provide 15% CAGR in perpetuity

2) 4-5 additional Tiger cubs buy it and trip  over themselves to divine higher price targets than the other

3) Ackman makes at least another billion front running them

4) the company seduces the ultimate unicorn, Warren Buffett

 

If all these happen I will short it. Until then, I'll let those far more knowledgeable and less jocular than I explain why this thang is worth 100 bilskys

 

If it wasn't such a waste of time, the above might be considered amusing. But it is a waste of time, not unlike spam in an email system. Wait, let me post a happy face.... :) there! Or should I wink?  ;)  Wow, lots of fun, and really productive too.

 

you are correct. was leaving work and made a joke, but it is precisely the type of trivial bullshit that I myself get frustrated with on this board.

 

I will proactively ban myself from this thread since I have 0 to contribute to analysis of this business (because I literally don't understand it at all). I'll go back to posting on my beloved 60-80 cent dollars that never re-rate and move slower than molasses.

 

I can understand the frustration. Seems like everyone is crushing it buying these high quality businesses that just go up forever.

[original mungerville]

can anyone come up with a way i can understand VRX's valuation?

 

http://finance.wikia.com/wiki/Castle-in-the-Air_Theory

http://reflexivityfinance.blogspot.com/2009/01/reflexivity-in-financial-markets-its.html

http://financetrain.com/ma-earnings-per-share-the-bootsrap-effect/

 

;D

 

Why don't you short it? ;)

 

I'm sure that Ackman, Sequoia, ValueAct, Glenn Grenberg, and Lou Simpson are all incapable of doing due diligence and looking through accounting to real economics...

 

I will only short it once

 

1) Gio mentions that Pearson is an entrepreneur and a business man and there are 10 trillion pharma companies out there, ergo stock will provide 15% CAGR in perpetuity

2) 4-5 additional Tiger cubs buy it and trip  over themselves to divine higher price targets than the other

3) Ackman makes at least another billion front running them

4) the company seduces the ultimate unicorn, Warren Buffett

 

If all these happen I will short it. Until then, I'll let those far more knowledgeable and less jocular than I explain why this thang is worth 100 bilskys

 

If it wasn't such a waste of time, the above might be considered amusing. But it is a waste of time, not unlike spam in an email system. Wait, let me post a happy face.... :) there! Or should I wink?  ;)  Wow, lots of fun, and really productive too.

 

you are correct. was leaving work and made a joke, but it is precisely the type of trivial bullshit that I myself get frustrated with on this board.

 

I will proactively ban myself from this thread since I have 0 to contribute to analysis of this business (because I literally don't understand it at all). I'll go back to posting on my beloved 60-80 cent dollars that never re-rate and move slower than molasses.

 

No big deal. I'm probably just in a bad mood.

[ScottHall]

can anyone come up with a way i can understand VRX's valuation?

 

http://finance.wikia.com/wiki/Castle-in-the-Air_Theory

http://reflexivityfinance.blogspot.com/2009/01/reflexivity-in-financial-markets-its.html

http://financetrain.com/ma-earnings-per-share-the-bootsrap-effect/

 

;D

 

Why don't you short it? ;)

 

I'm sure that Ackman, Sequoia, ValueAct, Glenn Grenberg, and Lou Simpson are all incapable of doing due diligence and looking through accounting to real economics...

 

I will only short it once

 

1) Gio mentions that Pearson is an entrepreneur and a business man and there are 10 trillion pharma companies out there, ergo stock will provide 15% CAGR in perpetuity

2) 4-5 additional Tiger cubs buy it and trip  over themselves to divine higher price targets than the other

3) Ackman makes at least another billion front running them

4) the company seduces the ultimate unicorn, Warren Buffett

 

If all these happen I will short it. Until then, I'll let those far more knowledgeable and less jocular than I explain why this thang is worth 100 bilskys

 

If it wasn't such a waste of time, the above might be considered amusing. But it is a waste of time, not unlike spam in an email system. Wait, let me post a happy face.... :) there! Or should I wink?  ;)  Wow, lots of fun, and really productive too.

 

you are correct. was leaving work and made a joke, but it is precisely the type of trivial bullshit that I myself get frustrated with on this board.

 

I will proactively ban myself from this thread since I have 0 to contribute to analysis of this business (because I literally don't understand it at all). I'll go back to posting on my beloved 60-80 cent dollars that never re-rate and move slower than molasses.

 

I can understand the frustration. Seems like everyone is crushing it buying these high quality businesses that just go up forever.

 

For taxable accounts, this is a preferable strategy to cigar butt investing. Deferred taxation makes it so, all else being equal. If you're confident you can do well above a buy-and-hold strategy, more power to you - it's definitely possible. But it does take a lot of effort.

 

Easier to let the good businesses do the heavy lifting. At least IMO.

[Jurgis]

What's point of posting anything except jokes on this board anyway? The fanboys come out in force and do the character assassination immediately.

 

I should ban myself from this board too. Also BH and AAPL.

[ScottHall]

What's point of posting anything except jokes on this board anyway? The fanboys come out in force and do the character assassination immediately.

 

I should ban myself from this board too. Also BH and AAPL.

 

Character assassination?

[Jurgis]

What's point of posting anything except jokes on this board anyway? The fanboys come out in force and do the character assassination immediately.

 

I should ban myself from this board too. Also BH and AAPL.

 

Character assassination?

 

What should I call the following?

 

Why don't you short it? ;)

 

I'm sure that Ackman, Sequoia, ValueAct, Glenn Grenberg, and Lou Simpson are all incapable of doing due diligence and looking through accounting to real economics...

[ScottHall]

What's point of posting anything except jokes on this board anyway? The fanboys come out in force and do the character assassination immediately.

 

I should ban myself from this board too. Also BH and AAPL.

 

Character assassination?

 

What should I call the following?

 

Why don't you short it? ;)

 

I'm sure that Ackman, Sequoia, ValueAct, Glenn Grenberg, and Lou Simpson are all incapable of doing due diligence and looking through accounting to real economics...

 

I don't view that as character assassination at all; more of a response to the notion that VRX is a castle in the air rather than a company being valued based off of the intrinsic value of the business. Liberty is a pretty reasonable guy, and I don't think he insulted anyone here.

 

If anything, the other person involved could be accused of taking a swipe at Gio. I'm not going to get involved in any drama, though; it's really not worth it for anyone involved.

 

Best wishes.

[giofranchi]

I would seriously question my VRX investment if this deal is real.

 

loganc,

I don’t think I agree… Strategically, this deal makes a lot of sense to me: VRX would go from zero to the number 1 player in animal health. And animal health is a sector which enjoys many of the characteristics Pearson has always looked for.

 

To become the number 1 player in a new sector that fits very well within VRX’s acquisition criteria surely is valuable.

 

I agree, instead, the financing of this deal is a lot more uncertain… That’s why I dind’t see it coming so soon!

 

Cheers,

 

Gio

 

[loganc]

I would seriously question my VRX investment if this deal is real.

 

loganc,

I don’t think I agree… Strategically, this deal makes a lot of sense to me: VRX would go from zero to the number 1 player in animal health. And animal health is a sector which enjoys many of the characteristics Pearson has always looked for.

 

To become the number 1 player in a new sector that fits very well within VRX’s acquisition criteria surely is valuable.

 

I agree, instead, the financing of this deal is a lot more uncertain… That’s why I dind’t see it coming so soon!

 

Cheers,

 

Gio

 

There are certainly aspects to ZTS that are desirable - cash pay, secular demand for protein, etc.  However, I am sure that you would agree that it is possible to overpay for the asset that holds desirable qualities.  My point is that if they do the deal now, it seems very likely that the deal will involve a very significant VRX stock component.  I perceive that stock to be quite attractively priced and I perceive ZTS to be very fully priced (even before we bring in whatever kind of deal premium is going to have to be paid to get the deal done) - Ackman basically admitted that ZTS is fully priced on the last PSH call.  Based on my understanding, issuing a bunch of VRX equity to buy ZTS would be overpaying. 

 

There is one obvious way to rectify all of this - it is that my analysis of VRX is wrong and the VRX equity is not attractively priced.

[Happy]

I also wonder how this would make sense when they just had to stretch by issuing equity to complete the Salix acquisition. They can take on some more debt if they get ZTS earnings, too, but they would really have to issue a lot of stock in my view and that's a very risky proposition if your stock is that valuable. I got a lot of trust in Pearson so if they do it I think it will make sense when they all lay it out, but I'm really curious now. It would be much easier and safer to pay off a good deal of debt after the Salix deal and then make the next move.

My best guess is that Pearson is in a hurry and both Salix and Zoetis are assets that fit so well into VRX that Pearson really wanted to have them at the right price and thought if he doesn't go after them they are definitely going to someone else. It seems Salix had no real other choice than to sell and for Zoetis it is now the first time to get bought without a big tax bill due to the spinoff. It's quite possible that Zoetis is gone soon if Valeant doesn't make the move and Pearson wants to have it at the right price even if the timing isn't close to optimal.

[Liberty]

What should I call the following?

 

Why don't you short it? ;)

 

I'm sure that Ackman, Sequoia, ValueAct, Glenn Grenberg, and Lou Simpson are all incapable of doing due diligence and looking through accounting to real economics...

 

Not "character assassination".

 

In what world would it be?  ???

 

If you go back and read through this thread, you'll see the repeated refrain (without ever any smoking guns) that Valeant is just some big smoke and mirror show designed to fool unsophisticated investors who can't see through it. I was merely pointing out that many of the best and most sophisticated investors operating today, including two who have/had insider access (and board level accesss in one case) hold very big, high conviction positions (most of these have VRX has their top 1-2 holding). Many of them have for years.

 

If that's "character assasination", then pointing out that the sky is blue must be too, because it's just a simple fact.

 

As for the line about shorting, it's an honest question. Many of the people who are positive about the company have put their money where their mouth is, which is usually a good gauge of conviction. But those who claim it is a fraud, a castle in the air, a ponzi, a house of card, an unsustainable model, etc, don't seem to be doing the same. The lack of symmetry is interesting. If I run around saying that a company is the next Berkshire but I don't own it, someone asking me why don't I buy it would be asking a good question.

[Jurgis]

The lack of symmetry is interesting.

 

The lack of symmetry is not interesting because there is no symmetry.

 

The fact that someone thinks negatively about a company does not mean that they should or will short it.

For example, some people don't short at all.

Also shorting, as you might know, is not really "mirror image" of going long for variety of reasons.

 

Also, I'll go Buffett on you. You should be cheering anyone with negative opinion because they are possibly lowering the price at which you can buy more shares.

 

Conversely by "fighting" against anyone with negative opinion, you have two risks: that the shares will become overpriced because of unmitigated enthusiasm (although perhaps you want that in a roll up ;) ); that you gonna strengthen your ownership bias to the point where you can no longer be unbiased in your evaluation of the company.

 

Take care

 

 

[giofranchi]

I perceive that stock to be quite attractively priced and I perceive ZTS to be very fully priced (even before we bring in whatever kind of deal premium is going to have to be paid to get the deal done) - Ackman basically admitted that ZTS is fully priced on the last PSH call.  Based on my understanding, issuing a bunch of VRX equity to buy ZTS would be overpaying. 

 

Basically I agree…

Though it is easy to see why things are more complicated than that: if you perceive VRX stock is quite attractively priced, you must have assumed in your valuation that Pearson will go on making shrewd acquisitions for a long time… Acquisitions for which he certainly won’t overpay!

Vice versa, if Pearson starts to overpay VRX equity might not be as attractively priced as you think…

 

Generally I tend not to question business decisions taken by any owner/manager alongside whom I have invested. I only take business results as they come: if I like them, I keep my investment, otherwise I sell.

 

Gio

 

PS

That’s why I have always insisted that it is very important for me to be sure to know how to read business results correctly! ;)

 

[Liberty]

So I'll assume that everything else I said was correct, since you didn't bother to quote it. I guess there was no "character assassination" after all..

 

The lack of symmetry is interesting.

 

The lack of symmetry is not interesting because there is no symmetry.

 

The fact that someone thinks negatively about a company does not mean that they should or will short it.

For example, some people don't short at all.

 

Also shorting, as you might know, is not really "mirror image" of going long for variety of reasons.

 

I agree. That's not what I was saying. I don't expect people to short everything they don't like or to run balanced long/short portfolios. Symmetry wasn't the right word; I guess I could just have said "the lack of conviction" is worth noting. I find it interesting that people who say very strong things about a company (not "it's too expensive for me" or "I don't understand it enough" or "I dislike the strategy", but rather "castles in the air", "ponzi", "fraud", etc) seem to lack the conviction to do anything about it. I mean, if it really is the next Enron or whatever, you'd think that some would see that as an opportunity.

 

Even John Hempton has been fairly quiet on Valeant of late...

 

Also, I'll go Buffett on you. You should be cheering anyone with negative opinion because they are possibly lowering the price at which you can buy more shares.

 

Conversely by "fighting" against anyone with negative opinion, you have two risks: that the shares will become overpriced because of unmitigated enthusiasm (although perhaps you want that in a roll up ;) ); that you gonna strengthen your ownership bias to the point where you can no longer be unbiased in your evaluation of the company.

 

Take care

 

You mean I should be careful about moving the price on an 80 billion dollar company?  Guess I must be watch out for that...

 

All I'm doing is trying to get to the bottom of what people are saying and challenging statements that I think are incorrect to see if there are arguments from the other side that can convince me. So far, I haven't seen anything of substance, but I'm always looking. You're welcome to change my mind if you have anything solid to contribute.

 

But if what you're saying is that I should cheer unsubstantiated claims and not ask questions, then I disagree.

[cubsfan]

Liberty - you've had this VRX nailed for a few years now. I regret my selling out after 2+ years in a weak moment.

I think others could learn a lot if they take the time to study ValueAct & Ubben, who are not short termers, who hand picked

the Valeant CEO, Pearson, who've made their strategy perfectly clear for years now. At $230+, I can't say if it's overvalued, but

it's interesting to see so many of the negative arguments made are the same as when VRX was $45 just 4 years ago.

[loganc]

Also, I'll go Buffett on you. You should be cheering anyone with negative opinion because they are possibly lowering the price at which you can buy more shares.

 

Conversely by "fighting" against anyone with negative opinion, you have two risks: that the shares will become overpriced because of unmitigated enthusiasm (although perhaps you want that in a roll up ;) ); that you gonna strengthen your ownership bias to the point where you can no longer be unbiased in your evaluation of the company.

 

Take care

 

I am a bull and most certainly welcome thoughtful argument/analysis as to why I am wrong.  I like to think of myself as having the mental flexibility to change my view when facts and reality do not correspond with my analysis.  The problem is that you and the other bears have not offered anything close to thoughtful analysis in this thread.  The negative opinions expressed have basically been ad hominem attacks stating that bulls are morons, don't understand accounting, etc.

 

Why don't you post some actual analysis as to why VRX is a house of cards?

 

 

 

 

[Jurgis]

The negative opinions expressed have basically been ad hominem attacks stating that bulls are morons, don't understand accounting, etc.

And the fanboys basically post that anyone with negative opinion is a moron, don't understand VRX/Pearson/etc.

 

Pot calling kettle.

[Liberty]

The negative opinions expressed have basically been ad hominem attacks stating that bulls are morons, don't understand accounting, etc.

And the fanboys basically post that anyone with negative opinion is a moron, don't understand VRX/Pearson/etc.

 

Pot calling kettle.

 

Just curious, Jurgis. Have you read this thread?

[Jurgis]

Yes I have.

[merkhet]

I'm going to try and tread carefully here, because this is the internet, and it's hard (impossible, really) to convey tone and other non-verbal cues.

 

One of the things I've begun to notice in this thread (and others, like SHLD, BH, AMZN, etc.) is that negative (sometimes even neutral) posts are interpreted as "attacks" (sorry loganc, not intentionally trying to call you out here) and positive posts are interpreted as "cheerleading" (sorry, Jurgis, same disclaimer as with loganc). Both of these thoughts incorporate an intention that may not actually be present in the person's statements.

 

Part of it is tribalism. Part of it is endowment effect. Part of it is that, on the internet, we just tend to go to extremes. There are probably a half dozen other cognitive biases at work on either side.

 

Just a friendly thought that we should at least give most of the posters here the benefit of the doubt that we are all trying to do provide value rather than just talking something up or talking something down.

[loganc]

I perceive that stock to be quite attractively priced and I perceive ZTS to be very fully priced (even before we bring in whatever kind of deal premium is going to have to be paid to get the deal done) - Ackman basically admitted that ZTS is fully priced on the last PSH call.  Based on my understanding, issuing a bunch of VRX equity to buy ZTS would be overpaying. 

 

Basically I agree…

Though it is easy to see why things are more complicated than that: if you perceive VRX stock is quite attractively priced, you must have assumed in your valuation that Pearson will go on making shrewd acquisitions for a long time… Acquisitions for which he certainly won’t overpay!

Vice versa, if Pearson starts to overpay VRX equity might not be as attractively priced as you think…

 

Generally I tend not to question business decisions taken by any owner/manager alongside whom I have invested. I only take business results as they come: if I like them, I keep my investment, otherwise I sell.

 

Gio

 

PS

That’s why I have always insisted that it is very important for me to be sure to know how to read business results correctly! ;)

 

I think VRX is cheap just based on integration/growth from Salix, the organic growth from the base business, and relatively modest business development activity.  I don't think you need to make assumptions about doing huge deals to make the valuation look attractive.  That being said, you are correct that if Pearson starts to overpay then VRX stock wouldn't be attractively priced.  That is precisely what I am worried about with respect to ZTS.  However, at this point in time, no overpaying crimes have been committed as far as I can tell and the ZTS is basically news chatter.  We'll see what happens.