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The Morning Brief: Valeant Surges, but Big Problems Remain
Shares of Valeant Pharmaceuticals International surged 7.4 percent on Monday to close at $28.98 after the drug company made a series of announcements that apparently played well among investors...at least for a day. The embattled company said it is replacing chief executive officer J. Michael Pearson and that William Ackman, CEO of Pershing Square Capital Management, which owns 9 percent of the shares, is joining the board of directors. Part of the intrigue of the day came when Valeant also said it asked former chief financial officer Howard Schiller to resign after the board’s Ad Hoc Committee determined that he and the former controller engaged in “improper conduct,” which caused the company the previously report “incorrect information” and restate prior results.
Remember, Schiller earlier this year was the guy who was named interim CEO when Pearson fell ill, a move that received widespread approval inside and outside the company. Schiller issued his own press release denying the allegations and vowing to remain on the board.
The big question now is who will replace Pearson? Will it be an industry veteran who can assure investors a drug expert will be taking over the drug giant? Of course, the company built its revenue base and stock price from a flurry of mergers and huge price hikes, a strategy that seems will need to be aggressively scaled back moving forward.
Meanwhile, on Monday Barclays downgraded its rating on Valeant’s stock from overweight to even weight and slashed its price target to $34 from $135. It cites “the greater uncertainties” facing the company over the next 12 to 18 months. It explains to clients who no doubt wonder what took the bank so long that despite Valeant’s “recent challenges” it had felt the company had solutions to address them, “namely the relationship with Walgreens to replace its troubled/controversial relationship with Philidor.” However, it now concedes: “We underestimated the lasting consequences of Philidor and the near-term impacts of the Walgreens initiative.” To quote a former presidential candidate: “Oops!”
Jeffrey Ubben’s ValueAct Capital continues to raise cash. The San Francisco hedge fund firm sold nearly 1.7 million shares of Motorola Solutions for between roughly $71 and $73 per share. This works out to around $120 million. After the sale, ValueAct owned 4.9 percent of the shares of the telecom company, so it no longer has to report when it sells additional shares.
Keith Meister’s Corvex Management nearly halved its stake in VEREIT. As a result, the New York activist firm now owns 4.9 percent of the owner and manager of retail, restaurant, office and industrial real estate assets.