Final chords are sounding for Valeant Pharmaceuticals Intl Inc (NYSE:VRX). Bill Ackman’s Pershing Square Capital Management has finally admitted defeat, taking a $2.8 billion loss and liquidating its position in VRX stock.
Ackman reportedly got a minimum of $11.10 per share for the stake, with the stock closing on March 13 at $12.11 and preparing to open for trade March 14 at $10.86.
Some hedge funds are still active in the company, which appears to be undergoing a slow liquidation. The latest assets to be sold were the skin care line, which drew $1.3 billion from L’Oreal SA (ADR) (OTCMKTS:LRLCY), and Dendreon, a one-time high-flier in prostate cancer, which got $820 million from a Chinese company.
Take What You Can Get
The problem for Valeant is the debt it took on during its asset-buying binge early this decade, which was predicated on its ability to raise prices on generic products and book the profits in Canada.
That long-term debt burden stood at nearly $30 billion at the end of last year, and the $2.1 billion earned through the latest sales will barely make a dent in it.
This means some analysts still think VRX stock a good short, even at $10 per share, believing the company will soon be worthless as interest rates rise and it starts to violate profit covenants on the debt.
The hedge funds remaining in the stock take solace from a March 10 statement from the company, to the effect that it had won consent for refinancing and an amendment of its credit agreements. In the deal, Valeant is taking out new loans maturing after 2022 to repay loans that come due before 2022, rolling over the debt and giving the company more time to raise cash.
VRX recently offered to cash out $1.6 billion of debt paying 6.75% at close to its face value — an offer which expires on April 3.
Valeant’s main leverage with creditors is now that it may default entirely on its debts and leave them with nothing, if it is pushed to the wall.
The creditors are taking the threat seriously.
What Is Left of Valeant?
The best asset left on the board is what’s left of Bausch + Lomb, the eye care company bought for $8.7 billion in 2013. CEO Joseph Papa had said as recently as September that dermatology and eye care were “core assets” the company would never sell.
The bullish case for Valeant is that the recent asset sales came at good prices and that the company has bought itself time, at least out to 2019, to complete the liquidation of the company. But it has now sold out the fastest-growing part of Bausch + Lomb, and its own guidance on margins shows margins declining.
Meanwhile, Salix, its other big asset, is facing an SEC investigation over matters predating its acquisition by Valeant, even as it beefs up the Salix sales force to sell more of its Xifarin drug for irritable bowel syndrome and Relistor for opioid-induced constipation.
Valeant originally bought Salix in 2015 for $14.5 billion, but a deal to sell it for $10 billion late last year to a Japanese company fell apart.
Bottom Line on VRX Stock
There are ways for sharpies to make money in a liquidation of assets, using their ownership as leverage to get the best deal for themselves.
This is not something an investor can get into.
Investors who ignored repeated warnings to get out when the company was worth something need to head for the exits now. As I reported, a good earnings report didn’t help VRX stock, now down about 20% from that report’s release.
The ship is going down. Stop listening to the orchestra and get on the lifeboat.
Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing, he was long AMZN.