Pershing Square's Valeant Sale Sends 'Untimely Poor Signal'

Pershing Square announced it has sold its entire stake in Valeant Pharmaceuticals Intl Inc VRX, primarily due to “a disproportionately large amount of time and resources required to manage the investment and a decision to realize a large tax loss and dedicate more time to the rest of the portfolio.”

BMO Capital’s Gary Nachman maintained a Market Perform rating on Valeant, while lowering the price target from $19 to $15.

Stake Sale

“Considering all of Pershing's efforts to create a turnaround situation with the new management team, we believe this "throwing in the towel" at these levels sends a poor signal regarding the road ahead for VRX,” the analyst stated.

Expressing surprise at the timing of the stake sale by Pershing Square, especpially given Pershing’s public endorsement of Valeant’s new management team that it helped put in place, Nachman mentioned it was difficult to interpret Pershing’s decision apart from the realization that Valeant’s turnaround might take a lot more time than earlier anticipated and the possibility of larger challenges than previous expected.

Related Link: Valeant Pharma Attempting To Find A Bottom

Poor Timing

“The timing of this decision is particularly noteworthy since new management is just beginning to implement a number of its strategic initiatives, including asset sales to help pay down debt, pipeline approvals and new launches, and a primary care effort behind key product Xifaxan to accelerate that product,” the analyst said.

Nachman believes that at this time, it would have been much more helpful for the top shareholder to continue to support the company’s efforts rather than throwing in the towel while the stock is at its lows.

“We don't believe this changes anything operationally for VRX at this time. Pershing Square CEO Bill Ackman and Vice Chairman Steve Fraidin will remain on the VRX board until the upcoming annual meeting but will not stand for re-election,” the analyst explained.