Ackman’s Pershing Square Sends Letter To Investors Following Valeant (VRX)’s Q4 Report

But first, a LOT is going on with the company  today and we have a few important points to make.

Shares of Valeant Pharmaceuticals International were down more than 40% on Tuesday after the company warned of an “event of default” if it does not file its delayed annual report by the end of April. 85 percent of the company’s market value has been wiped out since August.

BUT for some reason Credit Default Swaps and shares sold short are far below prior lows – see the chart from S&P Capital IQ below – I do not have an explanation for this one. If investors are worried about default these numbers should be up a lot more.

 

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Valeant-Credit-Default-Swaps-as-of-afternoon-Today
Chart via S&P Capital IQ

Second, Valeant has lost the trust of a key sell-side analyst who has done great work on the company – Umer Raffat

Third, for those concerned with short-term market movements, Valeant is weighing down the healthcare industry and possibly the broader market.

From JPMorgan’s trading desk:

Things are a bit busier than Mon but flows remain on the slow side. A sluggish retail sales numbers, two bad earnings (VRX and Jefferies), Fed hesitation, and general equity fatigue are all conspiring to weigh on the SPX.

Health care is pretty heavy thanks to the effect of VRX – VRX is off ~45%+ after earnings and that is weighing on some of its peers

More importantly, although Pershing is hurting a lot and shares of their public stock are now halted in Amsterdam trading, Ackman is not the only large shareholder here – far from it – not only do many hedge funds own Valeant, but many hedge funds (and other types of asset managers) have a huge percentage of their assets in the once pharma darling.

Chart via S&P Capital IQ
Chart via S&P Capital IQ

A few examples – see these links

Finally, Ackman’s letter to investors below.

H/T Street Insider

Pershing Square Holdings, Ltd. today released an email to investors. The text of the email is set forth below:

Dear Pershing Square Investor,

Today, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) reported preliminary unaudited earnings for Q4, updated guidance for Q1, full year 2016 and the next twelve months. In particular, management shocked the market with revenue and earnings guidance for the next twelve months (Q2 2016 to Q1 2017) which does not appear to foot with continued favorable prescription trends and management’s commentary on the call about the strength of the underlying businesses. Furthermore, the company’s 10-K has been delayed requiring the company seek a waiver under its credit agreement. While we believe that it is highly likely that the banks will provide a waiver, uncertainty about the potential for a default creates enormous investor fear.

The above factors have caused investors to lose total confidence in the company as reflected by the current 44% decline in Valeant Pharmaceuticals’s stock price.

Last week, Steve Fraidin, our Vice Chairman, joined the board. We are going to take a much more proactive role at the company to protect and maximize the value of our investment. We continue to believe that the value of the underlying business franchises that comprise Valeant Pharmaceuticals are worth multiples of the current market price. Getting to those values, however, will require restoration of shareholder confidence in the management and governance of the company.

We will do our best to keep you promptly informed subject to any limitations that we have now that we have recently become insiders at the company.

Please feel free to contact the investor relations team or me if you have further questions.

Sincerely,

Bill

Valeant Pharmaceuticals VRX March 2016

Valeant Pharmaceuticals

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