Munger Says “Valeant Is Not Enron”, But Not Impressed With Salad Oil Comparison

Munger Says “Valeant Is Not Enron”, But Not Impressed With Salad Oil Comparison
Via S&P CapIQ

Talk about damning with faint praise. Warren Buffett’s partner Charlie Munger is known for expressing his candid opinions on various subjects, and he has recently been critical of Valeant Pharmaceutical, saying the firm was clearly acting “immorally”. The firm is now under questioning by the Senate. See the letter to VRX here.

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On Monday of this week, however, Munger came out swinging in defense of Valeant, arguing that while the company may be guilty of "moral lapses", it is "not Enron". The controversial pharma company, which has been under fire in recent months for its policy of buying up the rights to acute care drugs and then increasing the price dramatically, has been under attack by short-sellers who claim the firm is the next Enron.

Munger says Valeant is "not Enron", but it's also "not American Express"

Munger later reverted to form and also took a swipe at BIll Ackman in his comments on Monday, noting that Valeant is clearly guilty of moral lapses, and it's basic business model is threatened, so Valeant's current situation is nothing like Amex in the early 1960s.

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Last week, Ackman, the founder of Pershing Square Capital Management, compared his firm’s investment in Valeant to the investment Buffett and Munger made in American Express five decades ago.

Of note, at the time, the credit-card firm's shares were hammered after warehouses owned by a subsidiary were involved in a missing salad oil scandal that resulted in hundreds of millions of dollars in industry losses and ultimately cost American Express around $60 million.

Munger argued that Ackman was making a flawed comparison. “American Express was defrauded. They were stupid. They weren’t immoral,” he noted.

“This goes way deeper than American Express,” he said, making reference to the current problems at Valeant. The “basic franchise [at Amex] wasn’t being hurt at all.”

On a historical note, Berkshire Hathaway first bought American Express shares in 1963 when its stock was off almost 50% following the “Great Salad Oil Scandal of 1963.” Buffett and Munger famously invested 40% of Berkshire's assets in Amex, and the stock moved up smartly shortly after they bought in.

Munger’s takeaway on Valeant is that it “is not as good as American Express was, and is not as bad as Enron."

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