December 29, 2016
By Alex Keown, BioSpace.com Breaking News Staff
LAVAL, Quebec – Despite the troubles of executives leaving the company and its largest shareholder selling off more than 3 million shares, there could be light at the end of the tunnel for investors when it comes to the embattled Valeant Pharmaceuticals .
Writing in Seeking Alpha, Chuck McDulin, a budding equity analyst, outlined several strategies the company could take in order to bolster the sagging stock prices. Some of the strategies include the sale of the assets it acquired in the $16 billion deal for Salix . Although the company would take a loss on any sale, McDulin estimated Valeant could receive $8 to $10 billion for the assets, which would provide it with the necessary capital to shore up its operations and avoid any possible bankruptcy from Valeant’s overwhelming debt.
Another scenario, and one that Valeant leaders have explored but not yet executed, is the sale of non-core assets to decrease company debt. McDulin said there are several problems with this scenario, particularly as interest expense on the debt could eat into cash flows.
Although spread thin with debt, McDulin noted that Valeant’s string of acquisitions over the past few years provided the company with a pipeline “set up to revitalize EBITDA (earnings before interest, tax, depreciation and amortization) over the next couple years.”
McDulin also touted Valeant’s Bausch & Lomb division as the company’s crown jewel, nothing that it has seen positive growth despite the troubles plaguing its parent company. Bausch & Lomb could be the cornerstone of the company’s future, McDulin posited.
While McDulin sees an optimistic future for Valeant (if things work out), other analysts do not have such a rosy outlook. An asset sale is also something that analysts at Piper Jaffray said could be problematic for Valeant, as is selling off Salix.
“Massively dilutive equity recap for Valeant. Hard to see how Valeant makes much of a dent into its debt ratios even with asset sales. With significant EBITDA declines likely extending beyond 2017, we simply do not believe asset sales can drive value creation (and selling a high-quality asset like Salix is self-defeating, in our view),” Piper Jaffray’s Joshua Schimmer, according to a Seeking Alpha post.
Valeant’s troubles don’t just extend to its finances. Valeant has been under investigation by the U.S. attorney’s office in New York since last year following news of the Philidor accounting practices became known. The company said it has been cooperating with the federal authorities, but cannot comment on the ongoing investigation. Additionally, Valeant said in a statement, that it cannot comment on possible rumored investigations, such as the Pearson and Schiller possibilities.
Earlier this month Bill Ackman, one of the largest shareholders of embattled Valeant Pharmaceuticals and a member of its board of directors, dumped a big chunk of company stock owned by his investment firm, Pershing Capital Management. Since Valeant’s fall, Ackman and his investors have lost approximately $2 billion, according to reports.
Shares of Valeant are trading this morning at $14.14. The stock is down about 85 percent since the beginning of the year.
