Valeant is now The Bill Ackman Show, and here's the next act

Everything that happens at Valeant Pharmaceuticals from this moment on will come from Bill Ackman.

As of Monday morning he has a seat on the board, in addition to connections to three other board members. Two of those three also have a connection to Robert Ingram, the board chair.

Those seats, plus the fact that his hedge fund owns 9% of Valeant’ stock, makes Bill Ackman the most powerful person in the room — especially now that CEO Michael Pearson is on the way out.

The question is: What will he do with that power as the company’s stock continues to be crushed under the weight of a controversy that started in October, when a short seller accused the company of malfeasance and the government started pressuring Valeant over pricing practices?

Well, we have a few clues.

The parts

It’s time for Wall Street to rework their sum-of-the-parts analysis of the company, because Ackman has already publicly suggested selling chunks of the company.

“Either management will restore confidence in the reputation of the company with the public and the investment community or they won’t,” Ackman said. “If they can’t then one of two things will happen — new management will be brought in or the business will be sold.”

The first part of that has already happened — we have the beginning of a new management structure. As for what will be sold, last week on a conference call Michael Pearson couldn’t name any “non-core” parts of the business he would sell, even though analysts on the call were clamoring for it.

Ackman, however, has said that he would sell parts of Valeant’s consumer eye care business, Bausch & Lomb. Valeant is a huge position in his fund, dragging down its performance to -25% year to date.

“Bausch & Lomb is a very valuable standalone business and some day — if Valeant chose to — they could sell a piece of that to pay down their debt,” Ackman said, according to Bloomberg.

Pearson was against that move, but now Pearson is gone, likely to be replaced by a more Ackman friendly executive. Remember, this is a company with over $30 billion in debt. It needs cash.

You should also, remember, though, that according to its contracts with bondholders, it can only sell 4% of its total assets a year.

So it better be a good 4%.

Get what you pay for

There are a couple things to keep in mind here. Valeant bought Bausch & Lomb in 2013 for $8.7 billion, and if you believe the company’s critics, it probably overpaid for that business.

In fact, Valeant’s critics have said the the company has consistently overpaid for its acquisitions in order to grow. If that’s true, the company isn’t going to make back what it paid — especially not if the market knows the company is desperate for cash.

It’s time to rethink how much all of this is worth.

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