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The Morning Brief: Ackman’s Record-Breaking Valeant Call
William Ackman continued to double-down on his huge bet on Valeant Pharmaceuticals International when he held a four hour conference call — yes, four hours — on Friday, breaking the roughly 3.5-hour record he set for his Herbalife presentation nearly three years ago. Friday morning’s call was a free-wheeling event in which the founder of New York-based Pershing Square Capital Management said he wished he could buy more stock but does not have the capital, hoped that Warren Buffett would get into the stock, railed at Valeant public relations firm Sard Verbinnen, and reaffirmed his commitment to CEO Mike Pearson. Oh, and he predicted the stock would hit $448 by 2018.
One thing he did not accomplish is to inject confidence into those who own the stock or are mulling a bottom-fishing play. By the end of the day, the shares had sunk another 16 percent, to $93.77, and are now down 65 percent from their early August high and down about 35 percent for the calendar year.
The stock has single-handedly hurt the performance of high-profile hedge funds, including Pershing Square, ValueAct Capital and Paulson & Company. However, not all hedge funds stayed in the stock for the free-fall. One fund manager tells me he got out as soon as Hillary Clinton started questioning the price of drugs in general, figuring she injected regulatory risk into the group. I can’t say the name but trust me, he does not have the clout, the name brand or the hubris of Ackman.
Here’s the reality: Ackman would be much better off if he went long on Herbalife and shorted Valeant. Shares of the multi-level marketer of nutrition and health-related products are up about 16 percent since he shorted the shares at around $47 to $48 a pop three years ago. Coincidentally or not, that stock jumped nearly 5 percent on Friday. Meanwhile, shares of Valeant are down 50 percent from Ackman’s average purchase price of $186.
Meanwhile, after a few days of reaffirming its stance on the stock, UBS finally cut its price target on Valeant, from $285 to $255. But of course the new price is still nearly triple Friday’s closing price. The investment bank points to Valeant’s announcement Friday morning that it is severing all ties with Philidor, the controversial specialty pharmacy at the center of accounting questions surrounding the drug giant, and that Philidor is shutting down its operations as soon as possible.
“This management team has always quickly admitted mistakes and altered its practices in the best interest of shareholders, and in this case, obviously, in the best interest of many stakeholders/customers as well,” UBS states in a note to clients. “The company admitted there were improper processes going on, and as the payers continued to make announcements yesterday of severing ties, it became clear to us that this is what action Valeant needed to take.” UBS adds that Valeant putting this part of its controversy behind it is a good thing for the stock’s sentiment.
Daniel Loeb's Third Point is back in the black...barely. The New York hedge fund manager gained 4.6 percent in October and is now up 0.1 for the year. The results are for two investment accounts of Third Point Re, managed by Third Point.
David Tepper appeared on CNBC Friday morning but did not make any market moving comments. The head of Short Hills, New Jersey-based Appaloosa Management said he remains cautious for the same reasons mentioned when we first reported this stance over the summer. “We’re in old-fashioned investing here,” he said. “You have to keep cash on the sidelines; have a diversified portfolio.”
Now here is yet another reason why you can’t predict the market. Deutsche Bank cut its price target on GNC Holdings, from $46 to $30, after the health products retailer reported third-quarter results that missed consensus and DB estimates. However, the stock rallied, surging more than 5 percent to close at $29.75, nearly hitting that target. This is a relief for Ricky Sandler’s New York-based Eminence Capital, the third-largest shareholder as of the end of the second quarter. If you recall, on October 22 the stock plummeted more than 14 percent after the Oregon Attorney General claimed the company is selling supplements with unlabeled and unapproved ingredients.