ValueAct Capital Management, the activist hedge fund headed by Jeffrey Ubben, is among the shareholders that reaped huge returns from their investment in Valeant Pharmaceuticals.

The Wall Street Journal noted that ValueAct Capital generated a staggering return of 2100% from its investment in Valeant Pharmaceuticals since 2006 when it started investing in the company. The activist hedge fund bought its shares in the pharmaceuticals company at an average price of $11 per share.

ValueAct Capital disclosed that it sold 4.2 million shares of Valeant Pharmaceuticals in a brokers’ transaction on the New York Stock Exchange (NYSE) last week. The selling price for those shares ranged from $219 to $230.60 per share.

The activist hedge fund still owns 4.4% stake in Valeant Pharmaceuticals. ValueAct Capital is no longer required to submit certain filings with the Securities and Exchange Commission (SEC), related to its investment in the pharmaceuticals company.

Valeant Allergan ValueAct
via David Benoit of WSJ

ValueAct sold shares to rebalance its overall portfolio

In a press statement last week, ValueAct Capital CEO Jeffrey Ubben said the “exceptional performance” of the management team of Valeant Pharmaceuticals led by its CEO Mike Pearson caused their investment in the company to grow more than 20% of theirs funds’ assets.

Ubben explained that they were compelled to reduce Valeant Capital’s stockholding in Valeant Pharmaceuticals to rebalance their overall portfolio. “We have owned Valeant shares for over nine years and have sold shares on three previous occasions for the same portfolio management purposes,” he said,

He added that the activist hedge fund’s stake in the pharmaceuticals company is still worth more than $3 billion, which is one of the largest investments in its funds.

Ubben joined the board of directors of Valeant Pharmaceuticals in October 2014. He took over the seat vacated by Mason Morfit, president of ValueAct, who joined the board of directors of Microsoft. Ubben is expected to continue working with Pearson and fellow board members in the pharmaceuticals company.

The activist hedge fund was instrumental in recruiting Pearson to serve as CEO of Valeant Pharmaceutical in 2008. It also helped designed an unusual compensation package for Pearson. Morfit, then chairman of the compensation committee of the pharmaceuticals company, was the main architect of Pearson’s pay package. His options and total shareholder package will only vest if the total shareholder returns exceed 15% over three years.

Compensation experts believed that the package provided incentives for Pearson to enhance long-term value for investors.

“Our job is to continue to drive the performance of this company so that they’ll have to do it again,” said Pearson in an emailed statement to WSJ regarding the return generated by Valeant Pharmaceutical’s shareholders.

ValueAct is focused on business building at Valeant

ValueAct is different from other shareholders at Valeant Pharmaceuticals because its investment is long-term, and it focused on “business building” in the company, according to people close to the activist hedge fund. They noted that other activist hedge funds are more focused on spin-offs and company sales.

Valeant Pharmaceuticals engaged in a hostile takeover battle for Allergan last year. It was defeated by Actavis. This year, Valeant Pharmaceuticals succeeded in acquiring Salix Pharmaceuticals.