VRX - Valeant Pharmaceuticals International Inc.

[lu_hawk]

This is from VRX's 10-K and is something pointed out in the Grant's piece:

 

In connection with the Medicis Acquisition, which was completed in December 2012, we acquired several brands, including the following aesthetics products: Dysport®, Perlane®, and Restylane®. In 2012, consistent with legacy Medicis’ historical approach, we recognized revenue on those products upon shipment from McKesson, our primary U.S. distributor of aesthetics products, to physicians. As part of our integration efforts, we implemented new strategies and business practices in the first quarter of 2013, particularly as they relate to rebate and discount programs for these aesthetics products. As a result of these changes, the criteria for revenue recognition are achieved upon shipment of these products to McKesson, and, therefore, we began, in the first quarter of 2013, recognizing revenue upon shipment of these products to McKesson.

 

In and of itself, taking a more aggressive stance on revenue recognition might not be hugely significant.  But investors are already ignoring the expenses and are mostly accepting the company's "cash" earnings without skepticism, and it seems without doing their own analysis.  Revenues are the one item that cannot be manipulated on the "cash eps" calculation (anything else can just be added back if you want to get a higher number), so when you see VRX is changing revenue recognition, then it makes you wonder.  Again, might not be a huge deal in and of itself, but you know you have a promotional management team that has made lots of acquisitions, so what else might there be?  Just another reason to be highly skeptical.  Even if you want to trust, you still have to verify.

 

 

 

[Phaceliacapital]

I agree that recognizing revenue faster rather than sooner might be a red flag. However, I did like the rebuttal that was posted on seekingalpha:

 

http://seekingalpha.com/article/2073923-why-chanos-and-grant-are-wrong-on-valeant

 

Can you spot the difference between Valeant and JNJ ?

 

The company recognizes revenue from product sales when the goods are shipped or delivered and title and risk of loss pass to the customer. Provisions for certain rebates, sales incentives, trade promotions, coupons, product returns and discounts to customers are accounted for as reductions in sales in the same period the related sales are recorded.

 

[…]

 

Sales returns are generally estimated and recorded based on historical sales and returns information. Products that exhibit unusual sales or return patterns due to dating, competition or other marketing matters are specifically investigated and analyzed as part of the accounting for sales returns accruals.

 

Sales returns allowances represent a reserve for products that may be returned due to expiration, destruction in the field, or in specific areas, product recall. The returns reserve is based on historical return trends by product and by market as a percent to gross sales. […] The sales returns reserve for the total company has been approximately 1.0% of annual sales to customers during the fiscal reporting years 2013 , 2012 and 2011. (Source)

 

Ok, I understand how they infer that they are (currently) selling less and less of older ( > 1 year) products and even have little negative growth in overall sales. However, at first sight, blaming this entirely on Valeant's "R&D" light model might be somewhat of a stretch, no?

 

I agree, they use a PE "like" approach, but I would certainly emphasise the "like" part. While they operate like Valeant, buying companies, stripping them down till their mean & lean, leveraging them up to magnify their equity return I do believe there are some differences.

 

1. PE companies are in the business to make a quick buck, by selling within 3 - 5 year range while Valeant is operating as a going concern without a "sell date".

2. In contrary to PE companies, Valeant has 2 (derma and eye care) growth platforms through which it can create incredible value by leveraging its sales force, capital allocation & business and development skills after taking over a company. (Salesforce adding one product to their sales list, relocation from HQ, low cost factories etc).

 

I know the first point is rather subjective, but if you look at these guys I almost can't believe they would be doing a modern version pump and dump?? Why do you call them promotional? Because the media succeeded in taking one sentence out of context and using it in all of their following articles? These guys made similar ""promotional"" targets 5 years ago, but at that time nobody cried about it because nobody believed they could ever do it. The fact is they did, and I thought even sooner than planned (or more profitable). These guys have been saying for years on slides and in CC what they would be doing.

 

- Avoid too competitive areas, both from a geo as a product perspective (which they did)

- Avoid reimbursement dependency and go for high cash pay products with less price pressure (which they did)

- Operate a R&D light model (which they did)

- Take over deals and restructure according to deal model (which they did)

- Operate under an efficient capital structure (got a lot of debt at low i-rates)

 

Why would you call these guys promotional?

 

On the financial side with the cash EPS I do not yet have a verdict. I don't like it when companies refer to non-cash EPS exlu this and inclu that, but sometimes as an investor it's necessary to do the extra side step to find out what the true earnings power of the business is. How many analysts properly account for B&L acquisition in their 2014 numbers? Because my god, have you looked at that transaction? These guys are unbelievable right? They buy it at an expensive 12x EBITDA by paying 8 bn for 780 mn (!!) of EBITDA, until .... you adjust these numbers for the expected synergies (they gave 800 but are actually closer at 850). This gives you a true EBITDA closer to 1,5 bn, making their purchase price just 5.8x !

 

So not only did they step outside their "circle of competence" of acquiring business in the 200 mn range, they show that they have the flexibility to really go where the value is. In addition, they get exposure to some nice regions where they can push other products and they have a new platform where they can start consolidating smaller businesses plus the eye care market is also very reimbursement independent. How do you value such a transaction??

 

Disclaimer: I know all the behavioral biases and check for them on a daily basis, I don't know yet if Valeant is trading at the price I would like to pay.

[Phaceliacapital]

I actually went more off topic than I wanted (a bit tired) and didn't address your first point on the drugs decline. I would think that sales declines have more to do with the products that are at the end of their life cycle rather than a shortage of R&D? Is there no way we can compare these with peers?

 

Also blaming these declines on the R&D light model, how does it actually work if you spend R&D on an existing product? Let's say I have an acne creme for which I spent R&D to make acne disappear even faster. Do sales of this "updated R&D" product enter in the same store sales, or in the overall sales component? This of course does not change that both negative is not great, I'll have to take a better look at the numbers.

[Liberty]

I believe they lost a big chunk of revenue recently because of Zovirax, but that's not something that will happen again any time soon (you can look at their patents ending for the next few years). They've also gotten out or reduced presence for less profitable areas/drugs, especially in developed markets where growth is slow, competition intense, and more reimbursements go through governments.

 

Getting out of less profitable businesses and markets is a good thing, IMO, even if it reduces revenue. The way I look at it, organic growth is not good in itself. It depends how much you need to spend to grow. If you need to invest $100 to get $2 of growth, I'd rather keep the money than invest it in that growth. Valeant has been saying that most R&D and marketing expenses in the pharma world have been getting terrible returns, which is why they're investing elsewhere. So if others have been growing faster but they are getting bad returns on the money invested to get that growth, I'd rather see valeant invest in other things where returns are better (ie. acquiring existing products, a 'sure thing' compared to R&D). All that matters in the end is how much value is created per dollar invested.

 

I believe that in their 2012 Q3 presentation they had 3 slides tracking past acquisitions. They have an IRR target of 20% minimum (for which they don't count any R&D pipeline products, and they have been conservative with synergies so far), with full cash payback of 5-6 years. All but 2-3 out of a dozen acquisitions that were big enough to be material (above 75m, iirc) were above target so far, with most over 10% above target. I think they recently mentioned that they'll give an updated version of that soon (they track it internally, of course), so that'll certainly be interesting to see. Of course, it'll take a few more quarters for B&L to be fully integrated (they said 2014 would be back-loaded, about 40/60).

[Liberty]

Just for reference, from the latest Q:

 

Following feedback from our investors, we are once again providing organic growth charts that detail both the reported organic growth performance as well as the performance excluding the impact of certain generics. The generic products this quarter, again, include the Zovirax franchise, Retin-A Micro and BenzaClin. The decline in revenue of the above-mentioned products was approximately $78 million in the quarter, and the details are included in Table 6 of our press tables for your information.

 

I am pleased to report that same-store sales organic growth performance for the total company was positive in the quarter, with a 2% organic growth that includes the impact of

 

all generic [indiscernible]. Excluding the aforementioned products, our U.S. business exhibited outstanding same-store sales organic growth of 14%, driven by many of our dermatology prescription brands, our aesthetic, consumer and oral health portfolios and certain neurology products. Our rest-of-world Developed Markets, which included Canada and Australia, delivered same-store sales organic growth rate of 12% in the quarter.

 

Our Emerging Market segment delivered a same-store organic growth rate of 8% in the quarter, which was slightly lower than the past quarters, primarily due to some softness in Latin America. We expect our Emerging Market segment to continue to deliver double-digit growth in 2014. On a pro forma basis, Valeant reported 6% organic growth in the quarter, including the impact of all generics.

 

As we reported on our last call, Bausch + Lomb operations have continued their strong performance since we closed the transaction on August. In the U.S., the Bausch + Lomb operations delivered 17% organic growth while the rest-of-the-world Developed Markets delivered 1% growth, bringing the total Developed Markets growth rate to 9%. The Emerging Markets business delivered double-digit growth of 16% as all of the Emerging Market businesses exhibited strong organic growth. Overall, Bausch + Lomb's organic growth was once again 10% in the quarter. We are very pleased with this performance so far and expect to see this continue in 2014.

 

[...]we continue to expect that 40% of our cash EPS will be in the first half of the year and roughly 60% in the second half, which is more heavily weighted in the back half than we've experienced in recent years. Q1 should be our lowest quarter, with each subsequent quarter higher than the previous quarter. There are several reasons for these expected results. First, as we mentioned on our guidance call, we are assuming more than $200 million in lost sales in 2014 versus 2013 from generic introductions for several products, and the negative impact from generics will be most acute in Q1 as we work through the remaining impact of the genericization of Zovirax and RAM, which were 2 of our largest products. As a result, our same-store sales organic growth in Q1 would likely be negative, but we expect same-store organic growth to be positive in Q2 and for full-year 2014.

 

[...]Two questions. One, one of the slides that you used to show that was particularly helpful showed the return on invested capital for all of your previous acquisitions, not the actual dollar amount, but just yes or no, whether or not they met your hurdle rate? And I didn't see that in today's presentation. So maybe you could just describe or characterize the current state of all the acquisitions that you've done, and are they still meeting your internal goal?

 

Actually, historically, we've done it once a year. We do a summary of our acquisitions. I think, it's in -- when we report second quarter results. However, we do track it -- second or third quarter results. However, we do track it on a continuing basis and actually at every board meeting review the progress. So I can say that with the exception of a couple of very small acquisitions we've made, we are ahead of our run rate in terms of cash flow generated and returns. So we're pleased to be able to report that. [...]

 

I think what matters is, again, our operating model and our ability to deliver on both the cost synergies as well as continue to grow the revenues. And if we can continue to put together a track record where we continually exceed the synergies and are able to organically grow and accelerate the growth of the products and assets that we acquire, I think that's what's really going to make a difference if we're successful or not. [...]

 

And Doug, in terms of strategy versus price, it depends on the situation. But price, in the end, we will not -- price is price. And unless we are able to earn, what we believe, the hurdle rates that we've talked about often, so the 20% IRRs and the 6-year cash paybacks, we're just not just not going to do a deal. So from that standpoint, we will continue to be very, very disciplined. All that being said, we are still quite confident that over the course of the year, we'll be successful with at least 1 significant transaction.[...]

 

I don't think there's any specialties we feel we need to be in. Again, we approach M&A a little bit differently I think than many companies in that our first test is always financial. Can we earn the return that our shareholders have come to expect from us? Then we'll look at the type of assets. And again, we talk about the attributes or characteristics of the types of business. We like cash pay. We like durable assets. We like businesses where the sales force and their relationships really make a difference. So we have a long list of criteria. And if that takes us into other specialty areas, we talked earlier about animal health, which is an area which we may or may not get into. But if you look at the characteristics of animal health, the relationships matter. They're durable. They're durable products. It's cash pay. It's growing. So something like that, we'd say that's a good business to be in. Primary care, the reason we shy away from that is just the sales forces are becoming less and less effective because they just can't get time with the doctors and can't develop those relationships. Managed care is -- usually, they're larger products, so managed care takes -- pays more attention to them. Often, they're government-reimbursed products. And quite frankly, even from a liability standpoint, liability is usually higher since so many people are using these products. So those are the reasons we don't like Primary Care. It's not just -- it's just -- so I think in all likelihood, we will get into other specialty areas as we continue to grow, but it will be more based on the type of business it is than any specific sort of therapeutic class.

[Phaceliacapital]

I read somewhere that their takeover model has a 20% hurdle rate excluding tax benefits, gross margin savings and revenue synergies. Can anyone confirm ?

[Phaceliacapital]

How do Grant's analysts quantify that an acquired business starts performing worse and worse the longer it operates under the Valeant umbrella?

 

This is how the conclusion was reached:

 

1) 2013 organic same-store sales growth, including generics, was -5.1%. Breakdown is -10.4% in developed markets, and +8.5% in emerging markets.

2) 2013 sales decline on a pro-forma basis, including generics, was -0.5%.

3) If same-store sales are declining faster than overall sales are declining, then the drugs that have been held longer are declining faster than the overall portfolio is declining. (and note that BOTH measures of sales are declining).

 

So for the conclusion, if same store sales includes only drugs held for more than a year, and that number is declining faster than overall sales are declining, then that means that drugs that have been held for more than a year are declining faster than drugs held less than a year. 

 

Grant's seems to imply that the deterioration in performance for drugs held longer may be caused simply because VRX now owns them.  That may be true, given that VRX likely employs a PE type management style (i.e., cut expenses to the bone now to make things look better in the near-term, even if it harms long-term value).  That may or may not contribute, and it may also be simply due to the decline profile of the drugs that VRX owns.

 

Are these numbers figuratively or are you using numbers from a presentation?

 

Because I am looking at:

 

US : SSS of -7% and overall of -2% (so a big decline of products longer held in portfolio)

ROW Devel: SSS of 2% and overall of 2% (no clear interpretation)

EM : SSS of 11% and overall of 12% (so a small decline of products longer held in portfolio)

 

Globally: SSS of 0% and overall of 2%.

 

I would not define this as a "worse worse" performance (at the moment).

[Phaceliacapital]

Some excerpts from latest conference call:

 

We expect our Emerging Market segment to continue to deliver double-digit growth in 2014. On a pro forma basis, Valeant reported 6% organic growth in the quarter, including the impact of all generics.

 

Like with the Obagi and Bausch + Lomb acquisitions, we want to maintain business momentum; and to that end, we have ring-fenced the Solta sales force and have made no changes to this group. Our plan with Solta is to maintain a separate sales force for the capital equipment and to expand the coverage of Solta's disposal products through leveraging our other aesthetics sales forces.

 

We would expect these ratios to improve over time and trend toward historical levels as we realize additional cost synergies, launch higher margin products and implement the Valeant business model.

 

There are several reasons for these expected results. First, as we mentioned on our guidance call, we are assuming more than $200 million in lost sales in 2014 versus 2013 from generic introductions for several products, and the negative impact from generics will be most acute in Q1 as we work through the remaining impact of the genericization of Zovirax and RAM, which were 2 of our largest products.

 

e believe the very strong growth prospects for our Emerging Market businesses dramatically outweigh any pain from short-term devaluation, and we plan to continue to invest in these important geographies. At current FX rates, this market activity would cost us approximately $0.15 per share for all of 2014.

 

But as we've been pretty consistent also saying this, we don't bet on pipelines, so it was not the types of asset that we were particularly interested in.

 

A lot of this is very opportunistic. A lot of it depends on the price. We're not going to do a deal that does not create shareholder value.

 

So the one thing we will not do is overpay.

 

And I don't think that philosophy will change at all. In terms of using stock, I will note that we did this one time before, and that's when we merged with Biovail. And so that created a fair amount of value. So it's -- I think-- if anything, I think when we have discussions with others Valeant's a little bit better known at this point, and the stock is I think viewed as a pretty positive currency. And as we've always said, we think that our stock is our most valuable asset. And we are going to be very, very careful using it because we think it's extremely undervalued, given our growth prospects.

 

Well, the R&D, we've been very clear that we'll spend about $300 million in year and $200 million in the first half, and it's just a question of timing of projects. So we're -- so that's what it is, Marc. We anticipate to spend the $300 million based on that progression.

 

And I will mention, in contact lenses, we did not have Ultra in the fourth quarter. In fact, that growth rate we would expect -- it's off a smaller base, but our growth rate we expect will start with a 2 this year, not a 1.

 

[Phaceliacapital]

Guys,

 

for those who want I created a google spreadsheet with their latest CF statement (oper. act), anyone who can get to their "Adjusted OCF" ?

 

https://docs.google.com/spreadsheets/d/1RdA6Q-bbkLMstFM_JuqigCOEMI0PF9S0AKxoNc8pydE/edit?usp=sharing

[Bagehot]

I read somewhere that their takeover model has a 20% hurdle rate excluding tax benefits, gross margin savings and revenue synergies. Can anyone confirm ?

 

I don't know about gross margin savings and revenue synergies, but they talked pretty openly during the analyst day in June, 2012 about the fact that their deal model uses the statutory tax rate and they incorporate restructuring costs into the up-front deal payment. So if they pay $100 for something and have $50 of restructuring costs, the deal model starts out at negative $150 and returns are calculated on that basis and don't include any tax synergies. Hope this helps!

[no_free_lunch]

I don't know about Adjusted OCF but there is a breakdown of the adjusted EPS at the link below.  They are basically the same number, adj ocf is 1.8B while adj earnings is 2.0B.

 

http://ir.valeant.com/investor-relations/news-releases/news-release-details/2014/Valeant-Pharmaceuticals-Reports-Fourth-Quarter-And-Full-Year-2013-Financial-Results/default.aspx

 

Basically with your spreadsheet only include rows 9,11,13,14,19 and that seems to be in general how the number is derived.  It makes sense,sort of, they are just trying to pull out one-time items.  Personally, I would probably model it with with row 20 included as well but then I'm not an accountant.

[Phaceliacapital]

Interesting, I went through their AR in which they didn't provide this reconciliation, thanks.

[Phaceliacapital]

Is it incorrect to adjust R&D expense by adding IPR&D that Valeant acquires through its acquisitions?

 

R&D as a % of sales would go from a reported:

 

2011          2012      2013

2463,5 3480,4 5769,6

65,7         79,1 156,8

2,67% 2,27% 2,72%

 

to

 

                      Biovail Medicis B&L

Large purchases 1400 159,8 418,3

Smaller purchases                    28,6 18,9

Total IPRD         1400 188,4 437,2

 

Total Adjusted       1465,7 267,5 594

 

As % of sales         59,5% 7,7% 10,3%

 

Which is not that light, but also not that heavy, but more important much less risky.

 

The 2011 figure is a little bit distorted by the Biovail transaction, and around 600 has been written down in relation to agreement with GSK concerning retigabine.

Would it be interesting to see what amounts they wrote off on acquired IPR&Ds?

 

In 2013, we recognized an impairment charge of $551.6 million related to ezogabine/retigabine (immediate-release formulation) which is co-developed

and marketed under a collaboration agreement with GSK, and we wrote off an IPR&D asset of $93.8 million relating to a modified-release formulation of ezogabine/retigabine.

 

In 2012, we wrote off an IPR&D asset of $133.4 million, relating to the IDP-107 program, which was acquired in September 2010 as part of the Merger.

 

In 2011, we recognized impairment charges on IPR&D assets of $105.2 million in the fourth quarter of 2011, relating to the A002, A004, and A006 programs acquired as part of the Aton acquisition in 2010, as well as the IDP-109 and IDP-115 dermatology programs.

 

For more information regarding these impairment charges and other impairment charges, see note 7 and note 12 of notes to consolidated financial statements in Item 15 of this Form 10-K.

[giofranchi]

Well, what I am saying is that cash eps should be irrelevant, because it's a number that the company makes up to make themselves look good.  In the final analysis, all that matters is real cash, not fictional cash, because you can only pay your creditors and your investors with real cash.  I was wondering if anybody had tried to do the independent analysis here, but perhaps it has not been done. 

 

Comparing this to TCI and Malone is not logical.  Out of the whole universe of examples, you can't pick one essentially random company that performed well despite having no earnings and doing a lot of M&A.  Because for every TCI there are 100 Worldcoms.  What is a typical path for companies that go from zero to big in a few years by making acquisitions using debt, have large cash outflows every year, and that supply investors with rosy non-GAAP numbers that may or may not bear a relation to economic reality?  That is a more relevant universe of experience to draw from.  Comparing this to TCI is like buying a lot of lottery tickets because you saw that guy on the news who won the Powerball.

 

This seems very dangerous to me, and it seems that the investment thesis here has mostly been "the stock has gone up, so it must be right."  I don't think it will be pretty when the tide goes out.

 

lu_hawk,

revenues have increased from $0.8 billion in 2009 to $5.7 billion in 2013... As I see it, there are only two options here: either Mr. Pearson’s business model is working very well, or Valeant is a fraud that puts Worldcom and Enron to shame!

 

Furthermore, Non-GAAP adjustments are very well explained and detailed, with lots of footnotes, in each News Release. The largest adjustments to get to Cash EPS from Net Income per share are:

- Inventory step-up,

- In-process research and development impairments and other charges,

- Legal settlements and related fees,

- Restructuring, integration, acquisition-related and other costs,

- Amortization and impairments of finite-lived intangible assets and other non-GAAP charges.

They all seem to me pretty much related to acquisitions, and therefore one time items (with the exception of amortization of intangibles, which is not a cash expense anyway).

Don’t you agree? If not, why? Could you please comment on each Non-GAAP adjustment, explaining why it shouldn’t be considered in calculating Cash EPS?

 

As far as your statement “all that matters is real cash” is concerned, I don’t agree. All that matters in business is to do what’s best for the long term. If right now they see great opportunities for external growth via acquisitions, because their business model enables them to aggressively cut all non-strategic costs still plaguing the pharmaceutical industry, and can take advantage of a low interest rates environment, what makes sense for the long run is to go on taking advantage of those opportunities. Like they are doing. ;)

 

Once again, as I have often repeated, the only sensible bear case for VRX would be to tell me why its acquisitions are bad businesses, and/or why Mr. Pearson has overpaid for them. Period.

 

Gio

 

[Phaceliacapital]

Let's say they earn their 1.5 bn EBITDA on B&L. None of that was reported in previous figures right? If we add it to current EBITDA of around USD 2.2 bn ? = USD 3.7 bn

 

As described in the Report of Management on Internal Control over Financial Reporting, management has excluded

Bausch & Lomb Holdings Incorporated and Natur Produkt International, JSC (together, the “Acquired Companies”) from its

assessment of internal control over financial reporting as of December 31, 2013 because the Acquired Companies were acquired

by the Company in purchase business combinations during 2013. We have also excluded the Acquired Companies from our audit

of internal control over financial reporting.

 

Net Debt EBITDA comes in around = 16.7/3.7 = 4.52 instead of a reported +/- 7.5

[no_free_lunch]

They included B&L in the 2013 figures for those 5 months or so it was under their control.  I am not sure where the $2.2B EBITDA came from, but the $2B adjusted EPS would have included B&L as well.  They are very clear on that in the AR and actually break out what it contributed to revenue for the year.

 

Total revenues increased $2,289.2 million, or 66%, to $5,769.6 million in 2013, compared with $3,480.4 million in 2012, primarily due to:

 

• incremental product sales revenue of $854.6 million, in the aggregate, from all 2012 acquisitions, primarily from the Medicis, OraPharma, and J&J North America acquisitions. We also recognized incremental product sales revenue in 2013 of $1,612.0 million, in the aggregate, from all 2013 acquisitions, primarily from the B&L, Natur Produkt, and Obagi acquisitions. The incremental product sales revenue from the 2012 and 2013 acquisitions includes a negative foreign exchange impact of $22.2 million, in the aggregate, in 2013; and

[Phaceliacapital]

Ugh so dirty, all the time I am doing CTRL F with B&L, I do it once with Bausch and I miss this, unbelievable :D

 

I got the 2.2 EBITDA from:

 

REV 5769.6

COGS 1905.12

RD 156.78

SGA 1305.16

OTHER 234.44

IMPAIR 1901.98

 

Oper INC 266.12

D&A 2015.81

 

EBITDA 2281.93

 

I exclude restru, acqu related and impairments.

 

So Natur was around 65 revenues in 2011, let's assume it grew at 10% to 72 revenue. Obagi is around 120, let's also say 10% growth, so 132. Total revenue of 132 + 72 = 204 of revenue.

 

They recognized 1612 so let's take 1600 - 200 of revenue leaves you at 1400 revenue from B&L (give or take).

 

1400 revenue, and B&L used to have an EBITDA margin of 720/3300 = 23%. So those 5 months added around 1400*25% =  350 in EBITDA.

 

So adjusting EBITDA 2013 by subtracting the EBITDA they received from B&L = 2200 - 350 = 1850, so without B&L they would have had around 1850 in EBITDA.

 

Take 1850 as a starting point and add the expected 2014 EBITDA for B&L, namely:

 

1) VRX claims they can get B&L EBITDA margin to (720+850)/3300 = 47.5%.

 

2) Let's say they in 2014 they meet halfway at around 35% on steady state revenues

 

3) Halfway EBITDA margin of 35% on steady state revenues of 3300 = 1155 in EBITDA

 

Add to 2013 EBITDA = 2200 + 1155 = 3155 in EBITDA? Assuming steady state normal operations, steady state B&L but improved EBITDA B&L.

 

16.3/3.155 = 5..2 ?

 

Does this make sense?

 

 

Put in in my spreadsheet on EBITDA tab:

 

https://docs.google.com/spreadsheets/d/1RdA6Q-bbkLMstFM_JuqigCOEMI0PF9S0AKxoNc8pydE/edit#gid=861455562

[no_free_lunch]

I think you probably underestimate the 2013 contribution from B&L so non B&L is probably lower.  However, you are probably underestimating the 2014 contribution a bit as well, so it might even out.  It's just a guessing game so why quibble over 1 or 2 hundred million?  You're in the right ballpark and there will very likely be additional acquisitions that will probably bump it up a bit.

[Phaceliacapital]

Yeah it's not exact science (as usual) but I appreciate the four eyes principle.

Would you agree with a more accurate indebtedness of around 5.2x ?

[Phaceliacapital]

BTW: BB has them at a consensus forecast of 4 bn EBITDA  ::)

 

 

[no_free_lunch]

So 4B EBITDA estimate and consensus earning forecast of $2.85B.  If you add $1.05B for interest to the earnings forecast you are already basically at $4B EBITDA.  So it looks like the analyst earnings forecast must not include any taxes, depreciation or amortization.  It is basically the adjusted EPS style that the company uses.

[cubsfan]

Valeant getting busy again - and going big time with Bill Ackman:

 

http://www.cnbc.com/id/101599582?__source=yahoo%257cfinance%257cheadline%257cheadline%257cstory&par=yahoo&doc=101599582%257cAckman,+Valeant+pursuing+

[fenris]

I don't really get how knowing that VRX will make a bid is not material nonpublic information. Then again, I don't get counsel from the best lawyers of the country and I'm sure this merger SPV between Ackman and VRX has been well vetted. If this situation ends up with a merger and no prison sentences I would expect a lot of activists to follow suit and try to team up with strategic acquirers to make some free money..

[Guest wellmont]

he has the best legal representation money can buy. would be shocked if it wasn't Clean.

[fenris]

Which is why i think this could be the first "creative" deal setting a precedent for a wave of hostile bids.

 

Credit markets are wide open and cheap, stocks prices for acquirers have reacted well in the last year or so as M&A growth gets rewarded, activist funds received strong inflows - all setting the stage a for a few high profile deals if this kind of activist/strategic partnership gets the green light.