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Holly LaFon
Holly LaFon
Articles (7317) 

Bill Ackman Has Had Enough Precipitous Declines for One Stock, Sells Valeant

Pershing Square lets go of 18 million Valeant shares

March 14, 2017 | About:

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.

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.

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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.

See Bill Ackman (Trades, Portfolio)’s portfolio here.


Rating: 5.0/5 (6 votes)

Voters:

Comments

user2551
User2551 premium member - 1 month ago

I don't understand this guys racket, but I don't think he's anywhere near as good as everyone assumes. As far as VRX goes, there's a lot of moving parts, both internal and external to the company. I think it's hard to analyse because it is essentially an optimal control problem: cash is leaking out of the bathtub at one rate and coming in the top at another. The balance of those rates over time determines whether the company will grow or erode value. While that's true of all companies, it's much more difficult when debt is sky high. One small adverse change in the rate of flow and the wafer of equity lying between debtors and creditors is wiped out. Selling off assets to pay down debt has obvious limits. I think a grand restructuring and terming out of liabilities is the only sure way to keep VRX viable.

Mark Yu
Mark Yu - 1 month ago    Report SPAM

Pershing crashed and burned on this one, big time. Nearly $4 billion realized loss.

theleadinghead
Theleadinghead - 1 month ago    Report SPAM

OUCH ..... That stung

snowballbuilder
Snowballbuilder - 1 month ago    Report SPAM

For what i know the total position was arount 27 mln sh with an average cost of around 150$/sh for a total investment of around 4 bln $ (four billion dollars)

He has sold the position at around 11$/sh bringing back around 300 ml of the 4 bln invested.

Now is true that no one hit 100% and that you can be right 50% of the tine and still make money (depends on the magnitude of the winner and the loser)

BUT

If you bet so big (around 20% of his asset) AND you end so damn wrong (more then 90% of loss) i think the game (career) should be probably over.

We will see what pershing investors will do.

Just some personal thoughts

Best snow

bigbadandugly
Bigbadandugly - 1 month ago    Report SPAM

Is part of the reason for selling to realize a tax loss advantage against other gains? In other words he may still think this stock could double from here but has other equal or better ideas to deploy the proceeds into while also getting tax loss advantages from the sale.

batbeer2
Batbeer2 premium member - 1 month ago

>> Selling off assets to pay down debt has obvious limits.

Actually, no. At the extremes it can be a fantastic way to make a healthy profit.

You issue some bonds at say... 6% to buy something.

Due to some fear your bonds trade down to say.... 12% yield.

Then you sell the asset to buy back your bonds at a discount to nominal value and.... presto! free money.

I have seen it happen and it is a distinct possibility at Valeant.

errold
Errold premium member - 4 weeks ago

never thought of that. Thanks for that bit of info Batbeer.

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