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Valeant Pharmatceutical’s Debt Won’t Be Fooled by a Name Change

Valeant - Valeant Pharmatceutical’s Debt Won’t Be Fooled by a Name Change

Remember Blackwater? It’s now called Xe.

Andersen Consulting is now Accenture plc (NYSE:ACN), Philip Morris is Altria Group Inc (NYSE:MO), and most of what was once Enron is now Kinder Morgan Inc (NYSE:KMI).

For similar reasons, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is about to become Bausch Health Companies.

Investors should not be fooled. But they will be.

That’s why companies do it. You bury the past and change strategies, away from what got you into trouble, toward something you can sell.

While a name change may seem cosmetic, the new company is often completely different from what existed before. For example, the accounting company that got into trouble over the Enron scandal was Arthur Andersen. It originally had a consulting and an accounting division. The accounting partners surrendered their license to practice in 2002. The consulting arm is now Accenture. The company has a stock price that is now 10 times higher and a steady stream of dividends that started at 30 cents per share and are now $1.33 per share.

Kinder Morgan also got its start by buying Enron assets, specifically a liquids pipeline, in 1997.  They scooped up other Enron pipeline assets over the years, until they had Enron’s company, without its ruined reputation.

And now, Valeant too hopes that people will forget what came before and focus on what’s ahead.

Valeant Example

Valeant grew early in this decade by buying out other pharmaceutical companies with debt, cutting their research budgets, raising prices and then moving the profits to Canada, where tax rates were lower. It worked great. Until people caught on that its aggressive tactics seemed to be an elaborate fraud designed, not to administer drugs to patients, but to get paid top prices for Valeant drugs that had cheaper competitors.

I covered Valeant from the beginning of the scandal, warning that its price might have no bottom.

In some ways it didn’t. Valeant sold for $242 per share as recently as September of 2015. It finally hit bottom in April of 2017, at about $8 per share.

The problem was that the debts incurred to acquire so many other companies had to be repaid. Long term debt peaked at about $30 billion, at which point management began selling assets as fast as it could.

When other businesses see a motivated seller, however, they are not going to offer top dollar. New CEO Joseph Papa tried to sell Salix, bought for $14.5 billion in 2015, to a Japanese company, which first offered $10 billion.  After negotiations, the price went down and the sale was called off.

Leave Bausch Alone

Bausch & Lomb — the eye care company from which Valeant plans to take its new name — is one business Valeant generally left alone after buying it for $8.5 billion in 2013. Well, it did talk up selling the eye surgery unit to Carl Zeiss Meditec (from which it originally licensed some of its technology in 1892) and for a while it talked about selling the whole unit.

But the unit remained intact, and the brand still has value. Bausch now represents over half the company’s total revenue. Meanwhile, Valeant shares, which opened at $18.16 on May 8, are now at more than twice their low.

But regardless, you’re still looking at $25 billion in debt on $37 billion on assets.

Debt, unlike other sins, can’t be hidden under a name change.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.

Article printed from InvestorPlace Media, https://investorplace.com/2018/05/valeant-pharmatceuticals-debt-wont-fooled-name-change/.

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