Why Bill Ackman Really Left Valeant

Why Bill Ackman Really Left Valeant April 5, 2017
By Alex Keown, BioSpace.com Breaking News Staff

NEW YORK -- In March, Bill Ackman, one of the largest investors took a $3 billion loss when he sold off the last of his shares of embattled Canadian pharma company, Valeant Pharmaceuticals . And that may have been his only option.

At least that’s what analyst Jose Solorio believes. Writing in Seeking Alpha, Solorio said it was possible that if Ackman and his investment company Pershing Square Capital put more money into Valeant, he could have made his money back. However, taking the loss, which could be a possible tax benefit, was a good solution. Solorio said Ackman can “sell himself as a fund with a $4 billion loss carryover.”

“Some commentators have valued the $4b loss at $38 per share. So the $11 he sold his stake at and $38 value for his loss almost match my projected estimate for a $47 per share at the end of 2019. It was a no brainer then for Bill Ackman to take the cash plus the tax benefit and move on,” Solorio said.

Solorio dismissed the idea that Ackman, who had been on the company board of directors, left because he got a good look at the books and realized the company was in deep trouble.

Additionally, Solorio pointed to an insider trading lawsuit facing Ackman and Valeant from 2014 when he backed attempts to acquire Allergan . They eventually lost out to Actavis , however there was some negative fallout from the Ackman and Valeant team-up. Both Ackman and Valeant are facing a shareholder lawsuit over alleged insider trading following the failure of that deal. Ackman acquired millions of shares of Allergan before Valeant made its attempt to acquire that company. Solorio speculated that having Ackman and Valeant as separate entities in the lawsuit, as well as Ackman showing a tremendous loss, will “probably lead to a more favorable settlement.”

At one point, Ackman owned about 10 percent of Valeant and was a staunch defender of the company. However, as the company continued to face a crushing debt of more than $30 billion and continued fallout from possible accounting fraud related to the Valeant’s ties to the now shuttered specialty pharmacy company, Philidor Rx Services, Ackman’s tune changed. In December, Ackman dumped about 3.5 million shares of Valeant, then the remaining portion of stock in March. With the two sell-offs, Ackman and Pershing have lost approximately $4 to $5 billion in Valeant investment. For his part, Ackman said he should have sold off his shares of Valeant in 2015 when the Philidor scandal was revealed.

While Solorio said it was the best move for Ackman to sell off his shares, he also praised the investor for saving the company during its troubled recent past (troubles it is still dealing with in multiple ways).

“Bill Ackman's activism helped ease creditors' concerns. As most remember, Valeant was on default last year with creditors. Creditors wouldn't have waived the default on the delayed filings and could have forced the company into bankruptcy to take control of the entity,” Solorio said.

While Ackman is out, Solorio said investors who are long on Valeant should hold their position and not buy into the notion that the company is doomed without Ackman. He said after the company refinanced its $30 billion debt, the company is a “solid buy.”

Shares of Valeant are down this week following the revelation that Valeant Chief Executive Officer Joseph Papa received total compensation of $62 million for eight months of work in 2016. Shares of Valeant are down more than 5 percent this morning, trading at $9.51 as of 11:15 a.m.

Back to news