Shares in Valeant Pharmaceuticals fall after Pershing Square sells off all stock

Shares in Valeant Pharmaceuticals fall after Pershing Square sells off all stock

MONTREAL — Shares of Valeant Pharmaceuticals hit a seven-year low Tuesday after one of its largest investors sold off all remaining stock in the Laval, Que.-based drugmaker, the latest knock to what was once one of Canada’s most valuable companies.

Valeant shares (TSX:VRX) hit $14.15 in early trading on the Toronto Stock Exchange. That was down nearly 13 per cent from Monday’s close and the lowest the stock has been since January 2009. It closed at C$14.59, down $1.62 or 10 per cent.

Pershing Square Capital Management announced Monday that it had sold its final stake in Valeant for a large tax loss. At one time, the New York-based firm headed by CEO Bill Ackman had been the largest single shareholder in Valeant and one of its most vocal defenders.

Ackman had once viewed Valeant as an undervalued company that would eventually overcome its problems, which included a scandal over its drug pricing strategy and revelations about its ties with a U.S. mail-order pharmacy that has since been shut down.

Last April, Ackman testified before a U.S. Senate committee about Valeant’s much-maligned strategy of buying niche drugs and raising their prices by as much as 3,000 per cent.

The prominent activist investor, who often challenges boards of the companies in the Pershing Square portfolio, promised to use his influence as a Valeant director to try to revamp its pricing strategy.

Gary Nachman of BMO Capital Markets and Neil Maruoka of Canaccord Genuity slashed their outlooks for Valeant’s shares by more than 20 per cent on Pershing’s move.

“Considering all of Pershing’s efforts to create a turnaround situation with the new management team, we believe this ‘throwing in the towel’ at these levels sends a poor signal regarding the road ahead for Valeant,” Nachman wrote in a report.

While the sale of Pershing’s investment doesn’t affect Valeant’s operations, Nachman said it comes as the company is just beginning to implement strategic initiatives including asset sales to pay down debt.

“We still think it’s hard to interpret Pershing’s decision at this time as anything but a realization that this turnaround situation may end up taking a lot more time and perhaps have greater challenges than originally anticipated.”

Vicki Bryan, an analyst with corporate bond research company Gimme Credit, said Pershing abandoned what had been a nearly US$5-billion investment in Valeant.

In a regulatory filing Tuesday, Valeant said Pershing sold its final stake of 18.1 million common shares for almost US$200 million and unwound 9.12 million options that were set to expire in 2019.

Ackman and vice-chairman Steve Fraidin will remain on the company’s board until their replacements are elected at the May 2 annual meeting.

Valeant CEO Joseph Papa, who was hired after Ackman’s involvement, issued a statement late Monday that thanked him and Fraidin for their support.

“We are fortunate to have the benefit of a talented and experienced group of directors who share our strategic vision, believe in our prospects, and are dedicated to turning the company around for the benefit of all shareholders and stakeholders,” Papa said.

Ross Marowits, The Canadian Press


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