When, in April 2014, Bill Ackman (Trades, Portfolio) and Michael Pearson came on stage together at the Equitable Center in midtown Manhattan to unveil their unorthodox bid to buy drug company Allergan (AGN, Financial), the two men couldn’t have appeared more different.
Pearson, the CEO of Valeant Pharmaceuticals (VRX, Financial), was frumpy, overweight and gruff. Hedge fund billionaire Ackman was, as always, impeccably groomed, trim and silver-tongued. What brought them together was their joint love of big deals –Â and big profits. Ackman seemed in awe of Pearson’s dealmaking and his legendary thriftiness. In his remarks, Ackman pointed out admiringly that Pearson wouldn’t allow Valeant shareholders to be on the hook for half of what it had cost to rent the auditorium they were using to announce the deal. Ackman had to pick up the tab himself.
At least for awhile the partnership worked. In Ackman, Pearson got a willing wingman on a controversial deal that other long-time Valeant investors advised the drug executive against. Pershing Square Capital Management had bought up a near 10% stake, investing more than $3 billion, in Allergan and pledged to vote those shares in favor of a Valeant deal. In return, Ackman collected billions for himself and his investors, putting him once again at the top of the hedge fund heap and in the spotlight of glowing magazine profiles in which he bragged about buying one of the most expensive apartments in New York City – a penthouse duplex with a commanding Central Park view in the new residential mega tower on 57th Street – even though he had no plans to ever live in it. (It was an investment with friends.)
Even after the bid for Allergan failed in November 2014, the relationship endured. In early 2015, Ackman doubled down on his partnership with Pearson, buying a huge stake in Valeant. That blunted criticism of Valeant that had emerged during and hung over the company after the failed Allergan deal. It also led other hedge funds to continue to load up on Valeant’s shares.
Ackman became the drug company’s biggest cheerleader. He once famously compared Valeant to Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial), even though the drug company had almost nothing in common with Warren Buffett (Trades, Portfolio)’s massively successful conglomerate other than the fact that both companies were active acquirers. Ackman’s outspoken public enthusiasm for the company helped drive Valeant’s market cap up another $23 billion after Ackman bought in.
The collaboration would eventually lead, as anyone who has heard of Valeant now knows, to a colossal, career-altering stock bust for both men. The relationship entered a new tension-filled stage last week with Ackman playing a central role in Pearson's ousting from Valeant –Â the company Pearson built nearly from scratch over a decade based on his singular vision of the pharmaceutical industry as essentially a glorified marketing and distribution business.
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