The CEO of Valeant has already rejected Bill Ackman's master plan

Hedge fund billionaire Bill Ackman’s plans for Valeant Pharmaceuticals seem to be at odds with those of the company’s CEO, Mike Pearson.

Ackman said earlier this week that the company could sell part of its Bausch & Lomb unit to pay down part of the company’s over $30 billion debt load any time it wants to. Valeant bought Bausch & Lomb for $8.7 billion back in 2013.

In a private meeting with employees six days before that, however, Pearson said selling Bausch & Lomb was not an option.

From Bloomberg’s Robert Langreth:

One thing Pearson said he wouldn’t do was pay off debt by selling one of its units, the vision-care business Bausch & Lomb. One of Valeant’s biggest shareholders — billionaire investor Bill Ackman’s Pershing Square Capital Management LP — at a March 8 investor conference suggested doing just that. Ackman also raised the threat that if Valeant didn’t turn things around, the management could be replaced.

That could be create some tension in Ackman and Pearson’s relationship. Valeant is Ackman’s biggest position, and he’s been involved with Valeant since 2014. That’s when he helped the company try to acquire its biggest target ever — Allergan Pharmaceuticals. Allergan slipped through the company’s fingers, but Ackman stayed around, cheering on Valeant’s acquisition-based growth model.

The Barrage

It was this model, in part, that ultimately drew scrutiny to the company. Valeant spent an industry-wide low of 3% of its revenue on R&D, and often dramatically hiked the prices of drugs it acquired. Politicians from Hillary Clinton to Senator Clare McCaskill have blasted the company for it.

Combine that anger with allegations of malfeasance from a short seller, the discovery of its close relationship with a mysterious specialty pharmacy called Philidor, and multiple investigations from the SEC and state attorney’s offices and you have yourself the unholy stock plummet that Valeant has been experiencing since October.

Valeant was forced to change its business model at the end of 2015. It announced that it would no longer hike prices, and instead depend on volume to generate revenue. At Pearson’s private meeting with employees, he assured them that there were no more “shoes to drop” about the company.

“We’re under a barrage of external government and media and everything else,” he said, according to Bloomberg’s report. “Everyone is nervous. The board is nervous. You guys are nervous. Everyone is making sure every ‘i’ is dotted, every ‘t’ is crossed.”

There are consequences

Pearson went on to say that, on top of a new deal it’s made with Walgreens, the company was also in negotiations with Express Scripts and CVS to ensure that those distribution channels were open to the company. Both pharmacies dropped Philidor, which distributed Valeant products near-exclusively, after troubling allegations surfaced about the distributor last fall.

When asked about the negotiations, the CEO of Express Scripts said they’d been talking to Valeant about “certain practices and behaviours” the company had demonstrated.

Meanwhile, on Tuesday, Valeant added three new independent board members. One is Stephen Fraidin, an M&A lawyer and vice chairman at Ackman’s hedge fund, Pershing Square Management. Another is an individual Ackman nominated for Allergan’s board. That Allergan nominee is connected to the third new board member, having worked with him in the University of North Carolina system.

Looks like we could have a good old fashion disagreement on our hands.

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