As Flailing Valeant Pushes Back Earnings Deadlines, Bausch & Lomb Sale Potentially on the Table
March 30, 2016
By Mark Terry, BioSpace.com Breaking News Staff
It’s now looking like Canadian drug company Valeant Pharmaceuticals International might be looking to sell off some assets in order to pay off some debt. One of the assets potentially up for grabs is Bausch & Lomb, which Valeant acquired in 2013 for $8.7 billion. The irony, of course, is that Valeant’s entire business model has been based on acquiring other companies, with more than 108 deals since 2008, more than eight of them in 2015 alone.
Summing up Valeant’s problems can be a complicated job. In April 2014, Valeant and William Ackman’s Pershing Square Capital Management made a hostile takeover bid of Allergan . Pershing bought up about 10 percent of Allergan stock in March of that year. Then in April, when Valeant and Pershing announced their joint bid, the stock jumped 15 percent, which gave Pershing about $1 billion in overnight gains. Allergan responded with a lawsuit accusing the companies of insider trading, which brought along a U.S. Securities and Exchange Commission (SEC) investigation.
Valeant is also being investigated by the U.S. government over drug pricing and distribution practices. Citron Research, formerly StockLemon.com, wrote an incendiary report in October 2015 comparing Valeant to Enron and accused it, among many things, of “channel stuffing.” That is, using specialty mail-order pharmacies that Valeant controls to make it, according to CNBC, “prop up sales of its high-priced drugs and to keep patients and their insurance companies from switching to less costly generics.”
The laundry list of Valeant’s problems goes on and on, including its chief executive officer, Michael Pearson, being hospitalized for several weeks at the end of last year. Pearson is now leaving the company and a search for his replacement is ongoing. Ackman unloaded 5 million company shares on the last trading day of 2015. The company’s debt level is very high because of all the merger-and-acquisition activity and the stock has lost 90 percent of its value since September 2015.
“Everything is coming home to roost,” said David Maris of Wells Fargo to Bidnessetc. “It was heralded as a new type of company, with a new type of CEO, but to me it has always looked like a child of the 1980s—acquiring assets, and then stripping them down.”
The New York Times tried to identify Valeant’s issues, noting that, “The Enron theory is seductive, but Valeant is a real operating business that by all accounts is profitable.”
The Times undercuts most of the current theories, although does note that hedge funds had driven up the company’s stock, observing that The Sequoia Fund put more than a quarter of its portfolio into the company, saying, “These investors should have known better than to chase returns, but this again has nothing to do with Valeant’s business.”
Some of it, The New York Times indicates, is probably bad PR. And a lot of debt. The company had earnings before interest, taxes, depreciation and amortization (EBITDA) of about $5 billion, so having a market value of $9 billion doesn’t really make sense, although $30 billion in debt that it might default on definitely causes concern. “The intrinsic worth of that business remains essentially the same,” Stephen Solomon writes in the Times. “It is the company that is suffering from a crisis of confidence. The flight by Wall Street shut down Valeant’s old business growth model, not its business.”
The Wall Street Journal writes today that earlier this month, Valeant announced plans to change its basic business model, as well as acknowledged some errors in its earnings statements. It has also proposed extending its deadlines with its lenders and its annual report rather than default on its debt.
But what of a Bausch & Lomb sale? It’s not out of the question, although revenue has been flat. It could also sell off separate units of the company or the entire division. It could bring in as much as $12 billion, according to some sources. Bidnessetc suggests that selling the company’s surgical and generic units might be a better option, which would help it pay off its debt and they’re outside Valeant’s strong eye care focus.
A potential buyer, Bidnessetc suggests, is Netherlands-based Mylan NV. “Although there are several buyers in the healthcare industry, not all might be ready to take on the risk of acquiring assets from a struggling drug-maker. However, if Valeant’s problems are put aside, Mylan NV could be interested in getting its hands on Valeant’s assets.”