Activist Investor ValueAct Capital Raises Stake In Valeant Pharmaceuticals Intl Inc (VRX)

Since late-2015, a reduction of more than 90% in market capitalization of embattled drugmaker Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has destroyed the performance charts of a number of hedge funds, including activist investors like ValueAct Capital and Bill Ackman led Pershing Square. While the latter recently bailed out of the stock, ValueAct has raised its stake further to now become the second largest stakeholder (5.2%) in Valeant. VRX shares jumped more than 4% during Thursday after-hours following the activist hedge fund revealed an increased stake in a 13D filing. Earlier this week, CNBC reported that Mr Ackman, formerly, the largest stakeholder in VRX, has liquidated his remaining position of 27.2 million shares at an average price of nearly $11, compared to the average purchase price of almost $196, when he acquired this huge stake in Valeant back in 2015. Pershing’s loss on VRX could be well beyond $4 billion.
Valeant’s Debt Profile As On 31 December 2016
With the stock trading at multi-year lows and an institutional investor betting big, investors are inclined to think that there is a good chance of VRX recovering some of the lost ground. But the company is facing multiple headwinds and is hardly showing any signs of a turnaround — a major risk that could force fire-sale of VRX’s assets is its extremely high debt-levels. The fact that Valeant is miserably behind its targets of debt reduction amid continued losses doesn’t help either. While VRX appears to be struggling to survive due to increasing financial distress and a reputation that entails the company indulging in illegitimate anti-competitive practices to boost sales of some of its high-priced drugs, recent debt-restructuring has encouraged the likes of ValueAct to increase their holdings. With an intrinsic value estimate of nearly $60, based on analysts’ projected cash flows, Valeant could be a multi-bagger if its earnings rebound and the company is able to fulfill its debt covenants and repayments; however, a bankruptcy would result in the company losing most of its remaining market value.

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