One can’t help but wonder if down the road, it will be come to known as “the one that got away.” And, much sooner than that, investors may be wondering exactly why they’re cheering — by virtue of buying the stock — the mere maintenance of the status quo.
Those are matters that can be dealt with after the dust settles though. For now, Takeda Pharmaceutical Co Ltd (ADR) (TKPYY) and private-equity firm TPG have made Valeant Pharmaceuticals Intl Inc (VRX) look desirable by reportedly making an acquisition overture a few weeks ago.
Just how serious Takeda was at the time remains unclear. No specific price for VRX was ever discussed, and Takeda has not persisted once Valeant promptly rejected the idea.
It doesn’t matter, however. The interest proves Valeant still has at least a little something to offer, and build on.
Takeda, TPG See Something of Value in Valeant
The past nine months haven’t been easy ones for VRX shareholders. The stock was down more than 90% from its August peak as of March, and hasn’t gained a whole lot of ground since then.
A myriad of reasons including questionable accounting practices, fears of unwieldy debt and an all-out attack on exorbitant specialty drug prices all contributed. At times it looked as is the only option would be to close shop and liquidate the various pieces of the company for the best price offered.
Now, perhaps things aren’t quite so grim.
The unsolicited takeover offer from Takeda and TPG materialized when now-former CEO Michael Pearson was on his way out but before Joseph Papa was named as the new CEO. In short, the board preferred the idea of finding the right person to take the helm and seeing if it was at least possible to reassemble the broken company, and perhaps restore some of the stock’s value.
It’s not a bad bet; there’s little left to lose after a 90% implosion. Indeed, some analysts like Mizuho’s Irina Koffler suggested “It would require a hostile offer and protracted battle to dislodge the current board, which most activists may find unattractive,” meaning even a nice premium offer to the stock’s price at the time would still mean several board members would be getting out at a sizeable loss on their Valeant stake.
Still, the pairing of Takeda and some of Valeant’s assets could have been compelling.
People familiar with the proposal say Takeda’s interest was primarily in the pipeline and portfolio of what used to be Salix Pharmaceuticals, which Valeant acquired last year.
The bulk of its assets are stomach disorder treatments, such as Xifaxan, a drug for IBS. Valeant believes Xifaxan, could generate $1 billion in sales this year alone. Takeda already has a strong gastrointestinal business that could easily be bolstered with related products. It’s also worth noting Takeda was one of the bidders for Salix last year, before Valeant ultimately won out.
As for TPG, it would have taken everything else, and either parted the pieces out or assumed operations as a whole.
For the foreseeable future though, investors can only speculate on what might have been.
Bottom Line for VRX
Whether or not Takeda and TPG were serious about a deal remains to be seen. It’s possible the two were simply going fishing to see if the Board of Directors nibbled on a lowball offer at a point in time when they were fearful the company may not survive at all and thought it would be better to take what they could get while they could get it.
Or, it’s possible TPG and Takeda really do see an opportunity in Valeant’s assets, but didn’t make a firm offer simply because the pair wouldn’t even know how to value VRX in the midst of the chaos.
Whatever the case, the overture does do one thing — it underscores the notion that deep down under the thick shell of carnage, there’s some modicum of revenue-generating potential. That’s what the board thinks Joseph Papa will be able to find again, and start to grow again … this time the right way.
And, he just may able to accomplish the Herculean task.
For starters, Papa aims to start whittling down the company’s $30 billion in debt (a sore spot for many investors) starting with a $1.5 billion reduction of it this year. Papa further acknowledged he was looking to sell some of the company’s non-core assets to raise cash and let Valeant focus on its bread-and-butter business lines.
He’s also hashing out new deals with pharmacies, and looking to re-price some drugs to make the more affordable, thereby increasing their volume of sales.
Only time will tell if the Board of Directors made the right decision by passing on the Takeda/TPG offer and choosing to let the company rebuild itself … a lot of time. That’s still arguably the better of the two choices though.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
