Bronte Capital, the famous Australian based hedge fund run by John Hempton, has opened a short position in Valeant Pharmaceuticals Intl Inc (NYSE:VRX), according to the firm’s April letter to investors. Hempton who is famous for his due diligence on shorts (see an excellent article on the topic here), has attracted media attention for his very bullish long position in Herbalife Ltd. (NYSE:HLF). The long HLF position has been profitable and that has continued into May, according to the letter. For the month, Bronte returned 1.42%, but is down 2.1% YTD in its ‘USA Reference Account’. Over the past three years, the hedge fund has returned 24.2% annually.
Hempton vs Ackman: Valeant And Herbalife
The short position in Valeant Pharmaceuticals Intl Inc (NYSE:VRX) puts Hempton on the “opposite side” of Bill Ackman for the second time in less than two years. Bill Ackman recently disclosed a large stake in AGN and is working with VRX to purchase rival Allergan, Inc. (NYSE:AGN).
Hempton is not alone in regards to his skepticism concerning VRX. Jim Grant argued that the company is a compelling short in a recent issue of Grant’s Interest Rate Observer and credited famous short seller, Jim Chanos for the idea. Additionally, famed short seller Jim Chanos recently questioned the company’s accounting, calling it aggressive.
There is a real business there, but there is no growth and the Street is paying up a huge amount for future growth based on acquisitions,” told DealBook at the SALT Conference in Las Vegas, which ended on Friday May 16th.
Below is an excerpt from the letter (dated May 14th 2014) regarding the new short position.
We don’t usually traffic in large-cap shorts, and we don’t usually disclose our shorts whilst they are still live. However we have spent considerable time trying to work out Valeant – a 50 billion dollar North American pharmaceutical roll-up. We find their accounts difficult to comprehend – which is not to say that they are incorrectly stated, just complicated by many acquisitions. We have initiated a short position.
Update 11:18PM EST: A previous version of this article stated that Ackman had a position in VRX. Ackman has a stake in AGN and is working with VRX to purchase AGN. The current version of the article has been updated to clarify Ackman’s holdings.
