After preparing everyone for a different sell by filing a prospectus to unload Chipotle (NYSE:CMG) last week, Bill Ackman (Trades, Portfolio) exited his entire stake in Valeant Pharmaceuticals (NYSE:VRX), a stock that has haunted his returns and contributed to the worst year in his fund’s history.
Ackman is selling his 7.26% stake of 18,114,432 shares of Valeant for around $11.04, their high Tuesday, before the price plunged 10.07% to $10.89 to close after his public filing was released. The price represents an almost 96% drop from the stock’s July 2015 high.
- Warning! GuruFocus has detected 5 Warning Signs with CMG. Click here to check it out.
- CMG 15-Year Financial Data
- The intrinsic value of CMG
- Peter Lynch Chart of CMG
The Pershing Square investor started buying Valeant when it traded for an average price of $177 in the first quarter of 2015, before catching 5 million shares for around $74 on their way down in the first quarter of 2016.
Valeant’s tumble in the latter half of 2015 started when politicians began calling it out for hiking prices on life-saving drugs and it came under suspicious for accounting abnormalities. The company, which had previously achieved whirlwind growth through acquiring smaller companies and raising their drugs’ prices by hundreds of percents and spending little on research and development, replaced its CEO and vowed to change its business model, while Ackman joined its board of directors.
As early as two months ago, Ackman spoke about the company’s progress, though it lowered its 2016 EBITDA and EPS targets, calling some of the key factors “permanent headwinds while others are temporary.” Ackman also said the business “continues to stabilize following the disruption of recent quarters.”
Addressing the company’s $29.9 billion in debt, Ackman said in his shareholder letter, “Management reiterated its commitment to achieve more than $5 billion of debt reduction over the next 18 months from a combination of cash generation and asset divestitures. We believe that asset sales are an important catalyst for value creation and stock price appreciation at Valeant. Valeant has identified approximately $8 billion of assets that are non-core which it has begun to market for sale.”
Relieving his fund of the stake may spell a nicer year as seven of his nine other stock positions have posted gains and he has so far landed a positive year, returning 0.9% for January and February. In 2016, Ackman’s fund declined 12.1%, following a 19.3% decline in 2015, the worst year in its history.
Prior to that, Ackman had returned an 20.8% annualized to clients and had only two down years, including in 2008 when he lost only 13% compared to 37% in the S&P 500.
His top positions at the end of the fourth quarter were Restaurant Brands International Inc. (NYSE:QSR), Chipotle Mexican Grill Inc. (NYSE:CMG) and Mondelez International Inc. (NASDAQ:MDLZ). If he combines funds from Valeant and Chipotle, investors may watch what the activist investor targets next.