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The Morning Brief: Ackman on the Value in Valeant

William Ackman concedes he regrets buying shares of Valeant Pharmaceuticals International, the stock that is more responsible for his steep losses since last year than any other. In a freewheeling one-hour interview on CNBC, the founder of New York-based Pershing Square Capital Management said, “No one wants a stock down 85 or 90 percent.” Asked how close he came to bailing out completely from the stock, he said, “I came very close. I thought very seriously about it.” But he said he hung on because of what he believes is the high value of the drug maker’s assets. He pointed to Valeant acquisitions such as Bausch & Lomb and Salix Pharmaceuticals as well as key products.

Shares of Valeant dropped nearly 13 percent in the first 90 minutes of trading Monday after the company reported negative news on Friday as it filed its 2015 annual report, which was late. The stock, however, started to surge from noon to 1 p.m. while Ackman talked up changes made at the company over the past five weeks, including new top management, a shake-up of the board of directors, the filing of its annual report and restatements of earlier results. The stock wound up closing for the day at $32.58, down “just” 2.34 percent for the day.

Over the next two weeks we’ll learn which hedge funds bought, sold and stood pat with positions in Valeant in the first quarter. Of course, we won’t know exactly whether those who bought or sold did so before or after the stock dropped nearly 50 percent on March 15.


Ackman also suffered bad news Monday when Credit Suisse said a new analyst who assumed coverage of Platform Specialty Products, a producer of specialty chemicls and services, cut the price target from $14 to $10. The analyst also maintained a Neutral rating on the stock, asserting concerns about leverage at the producer of chemical products. “While we remain constructive on the long-term story, weak end markets damper its ability to reduce leverage,” said a note sent to clients on Monday. In an investor presentation on April 26, Pershing Square said that Platform “is working to address the challenges it faced in 2015.” The stock fell nearly 50 percent last year and has nearly halved again this year, dropping more than 3 percent on Monday alone to close at $9.98. “Platform’s current collection of businesses benefit from long-term secular growth trends and have favorable competitive positions,” Pershing Square told clients at the recent investor meeting. Credit Suisse is obviously taking a wait-and-see attitude.


Ackman received some good news on Monday, however, when Barclays raised its price target on Air Products and Chemicals—one of Pershing Square’s more successful investments—from $147 to $162. The bank also retained its Equal Weight rating on the stock. The move comes following a strong quarterly earnings report. In the first quarter, Air Products was the only stock singled out for generating a profit for Pershing Square. As we earlier noted, Pershing Square stressed that the company has generated six straight quarters of double-digit earnings-per-share growth since Seifi Ghasemi became CEO.


Merger arbs and activists were apparently surprised by the news that Baker Hughes and Halliburton called off their merger, which they had agreed to in November 2014. Under the deal between the two energy-services companies, Halliburton will pay Baker Hughes a $3.5 billion termination fee. Baker Hughes said it will use the proceeds to buy back stock and pay down debt. Even so, shares of Baker Hughes fell by 2 percent while Halliburton rose nearly 2 percent, though off from their high on the day. As we earlier reported, last week San Francisco-based ValueAct Capital reported selling nearly one million shares of Baker Hughes from March 7 through March 22, resulting in a stake of 9 percent. At year-end, ValueAct also owned 1.92 percent of Halliburton, making it the ninth-largest shareholder at the time.

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