Billionaire investor Bill Ackman’s Pershing Square Capital Management LP said hello will require a much larger role at Valeant Pharmaceuticals International Inc., after losing about US$1 billion right away following a drugmaker’s 49 per cent stock drop Tuesday.
“We are going to take a much more proactive role in the company to protect and increase the value of our investment,” Ackman said in a letter Tuesday. Pershing owns 9 per cent of Valeant shares, according to a March 9 regulatory filing. He said that investors have forfeit “total confidence within the company,” adding to the stock drop. Ackman’s firm recently added a representative to Valeant’s board.
Valeant shares plunged Tuesday morning within their worst day ever following the company cut its 2016 forecast, reported a weak fourth quarter and said it risked breaching some of its debt agreements whether it can’t file its annual report in time. Ceo Mike Pearson has promised to revive confidence within the drugmaker with investors.
Yet the company’s stock losses – the shares are down 86 per cent since their August peak of US$262.52 – have cost Ackman and other large holders billions of dollars in paper losses. Ackman’s calculated losses assume the investors still own the number of shares indexed by their most recent regulatory filings.
Pershing Square, located in Ny, often buys large stakes in firms that it sees as undervalued, after which sometimes pushes for changes by the management or board to boost returns. In October 2014, a public fund called Pershing Square Holdings Ltd. began exchanging Amsterdam with the same portfolio as the hedge fund; its stock was down 12 per cent on Tuesday.
Ackman also said he believed Valeant could be successful in getting a waiver from creditors to avoid violating its debt agreements, since it will be late filing its annual report. Valeant said it must file its 10-K by March 30 to prevent triggering cross-defaults that will restrict it from being able to further tap its line of credit. It won’t have the ability to meet that deadline and will begin asking lenders in a few days to amend the agreements.
“While we believe that it is highly likely that the banks will provide a waiver, uncertainty concerning the potential for a default creates enormous investor fear,” Ackman said.