A quick note on Valeant Pharmaceutical short sellers from Wall Street analytics firm, S3 Partners — something to give a little context to hedge fund billionaire Bill Ackman’s exit from the company.
“VRX short sellers were profitable every year after Bill Ackman’s entry into the stock, eventually earning a 343.45% return on their average short position of $US801 million,” the firm said in a note to clients.
You’ll recall that Bill Ackman started buying Valeant stock after collaborating with the company on a failed hostile takeover of Allergan. Months later, in March of 2015, Ackman started investing in Valeant, which at the time cost around $US140.
It would climb to a high of $US257 that summer before plummeting over 90% to where it sits today at $US11.
Short sellers were there every step of the way. Jim Chanos, founder of Kynikos Associates, announced that he was short the company in 2014, saying that it was a rollup — company with no organic growth that required acquisitions to survive.
Another short seller, Andrew Left, contributed to Valeant’s precipitous fall in October of 2015 by publishing a report calling into question whether or not Valeant was the next Enron.
More from S3:
Short sellers may start exiting their positions with Pershing Square’s stock sales already having pushed VRX’s stock price to year-to-date lows. But they might be waiting for the other shoe to drop, with the possibility that John Paulson, of Paulson & Co, will sell his 19.4 million share stake in VRX after Bill Ackman’s recent exit. With short interest at $US572 million, and falling, each $US1 drop in VRX’s stock price equates to approximately $US50 million in profit.
That considered, now might be time to take some off the table.
Or you might take into consideration that despite the fact that even though Valeant beat Wall Street’s expectations in its most recent earnings announcement, the stock fell 6% because guidance was weak. The company is looking to refinance its $US30 billion in debt and needs to sell assets to make payments, and analysts worry that those sales could cut into the company’s revenue.
So maybe you leave it on the table.