The Morning Brief: Ackman Concedes Valeant “Was a Huge Mistake”

March 30, 2017   Stephen Taub


The Pershing Square founder tells investors in his publicly traded vehicle that the Valeant holding accounted for most of its losses last year.

Pershing Square Capital Management founder Bill Ackman tells clients his investment in Valeant Pharmaceuticals International "was a huge mistake." But, although he recently unloaded his huge stake at a huge loss, he asserts "we recently sold Valeant at a price that may end up looking cheap."

The activist investor writes in Pershing Square Holdings’ annual letter that over the past year, the embattled drug company replaced senior management with new executives, recruited 10 new directors, refinanced and renegotiated covenants on the company’s debts, sold assets at "value- and credit-accretive prices," provided improved investor transparency, increased R&D investment, and achieved major new product approvals.

"Normally, one would have expected this progress to be reflected in an increase in share price, but that has not yet materialized," Ackman laments. This is little consolation for investors, as Ackman points out that Valeant cost investors 19.2 percentage points of the fund’s overall 26.1 percent loss last year. Otherwise, the next single biggest investment loss last year came to just 1.4 percent — a bet on currency derivatives and shares of Mondelez International. There were winners too, including five it chose to disclose, led by shares of Restaurant Brands. An undisclosed long was also up 1 percent, while "all other positions" rose 0.60 percent.

Meanwhile, on Wednesday shares of Valeant surged 4.7 percent, to close at $11.18, after the company said in a regulatory filing it had extended the maturity date of $1.19 billion of revolving credit commitments by two years. The remaining $310 million of revolving credit commitments will continue to mature on April 20, 2018.

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Elliott Management Corp. is turning up the heat on Akzo Nobel, the Dutch paints and chemicals group. The New York activist manager said in a press release that nearly one-quarter of institutional investors it privately surveyed want the company to engage with PPG Industries, which had earlier made a $26.4 billion takeover offer that was rejected. Elliott concedes Akzo’s plan to spin off its specialty chemicals business "is worthy of shareholder support."

It also supports the Dutch company’s plan to take some time to evaluate alternatives to a sale of the entire company. But, it adds in the statement: "Being given time to evaluate this and other alternatives does not mean that it is appropriate to completely ignore a bona fide offer from a respected counterparty." Elliott said it retained proxy advisory firm Boudicca Proxy Consultants to evaluate the views of Akzo Nobel’s institutional shareholders. Nearly half of more than 300 institutions responded to the survey, representing nearly one-quarter of all investors. And virtually all of them agree Akzo should engage with PPG, Elliott said.

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Activist Blue Harbour Group said it entered into a compromise agreement with Investors Bancorp. Under the deal, the board of directors of the regional holding company named Peter Carlin, an employee of the hedge fund headed by Cliff Robbins, which owns at least 4 percent of the shares. Carlin’s term expires in three years.

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Och-Ziff Capital Management Group said it acquired about 836,000 shares of Mulesoft, or 6.43 percent of the software company that went public earlier this month.

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Shares of chemical company Chemours jumped 3.2 percent after Jefferies reportedly raised its rating on the stock from hold to buy. The stock is up about 70 percent this year already after more than quadrupling last year. The company was created when it was spun off from DuPont in July 2015.

Greenlight Capital was the largest shareholder at the end of the third quarter and the fourth-largest at year-end after cutting its stake by 45 percent. Also at year-end Adage Capital Management became the eighth-largest shareholder after establishing a new position in the stock.

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Shares of RH surged about 15 percent to $43.68 after the maker of high-end home furnishings reported earnings that beat analyst expectations. Balyasny Asset Management was the sixth-largest shareholder at year-end.


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