A much more realistic option would be Ingram. He was already groomed, is more sales focused, and has experience growing an international brand, which is what Valeant will need to focus on. However, it would require Ackman to eat his words in front of the investor community and make a huge offer to drag him away from his clinical-stage pharma company where he is currently the CEO. But throw enough money at anyone and who knows who you can get.
Glossary of Hostile Takeover Terms with Discussion
- Thread starter Shoham
- Start date
A much more realistic option would be Ingram. He was already groomed, is more sales focused, and has experience growing an international brand, which is what Valeant will need to focus on. However, it would require Ackman to eat his words in front of the investor community and make a huge offer to drag him away from his clinical-stage pharma company where he is currently the CEO. But throw enough money at anyone and who knows who you can get.
How is this not accounting fraud?
"Lots of companies have accounting scandals that involve recognizing revenue earlier than they should have, but Valeant is breaking some new ground in recognizing that revenue twice. Here is the stylized math:
The proper accounting was the approach labeled "Sell-through." Valeant's approach was some combination of "Sell-in" and "Why not both?" Oops!" from Bloomberg article.
http://www.bloombergview.com/articles/2016-03-21/valeant-sold-some-drugs-twice?cmpid=yhoo.headline
"Lots of companies have accounting scandals that involve recognizing revenue earlier than they should have, but Valeant is breaking some new ground in recognizing that revenue twice. Here is the stylized math:
The proper accounting was the approach labeled "Sell-through." Valeant's approach was some combination of "Sell-in" and "Why not both?" Oops!" from Bloomberg article.
http://www.bloombergview.com/articles/2016-03-21/valeant-sold-some-drugs-twice?cmpid=yhoo.headline
Totally agree. I was suggesting Pyott to be provocative. But Ingram, Ball (ex Hospira) and possibly others could be targets. Whoever it is, ex AGN or otherwise, the person needs to have clear authority to clear house. Personally I don't see the effort of being CEO of VRX as a long lived job. I suspect the job is to clean up, be a stable visible spokes person, and be a good negotiator.
Ackman has proven he knows nothing about pharma. He wants a new CEO so he can keep the share price from falling long enough to negotiate with creditors, possibly buy back their own debt (if someone, maybe him,comes in with money) and sell off assets to settle debt and credit issues. If there is anything left when the assets are sold then maybe there is a company to run. In the meantime employees and shareholders get to sit back as the creditors run the show. Because of this reality getting someone to take the helm will be a challenge. But I think the only possible path to success lies in having a real seasoned pharma exec to bring confidence back. Pearson and Ackman did serious damage here!
I'm sure there will be lots of articles coming out soon so everybody share what they find or hear.
P551
I am going to guess that the "Refuse to resign" thing is partly because he has evidence of what went on, and it extends beyond what VRX said.
Despite the fact that the Ad Hoc Committee was not done its work, they threw Schiller under the bus completely and they stuck themselves in a corner - they can't walk back from that.
How is it that the CFO arranged for the illicit inventory push into Philidor? It strikes me that someone else in management would have done something like that, then asked the controller to approve, who then asked the CFO to approve the accounting.
And how is it that "it would have been appropriate" to double count if the inventory had arrived there without foreknowledge of the Philidor option transaction. It would have been exactly the same inventory. Valeant is getting bad advice.
And HS knows it.
Despite the fact that the Ad Hoc Committee was not done its work, they threw Schiller under the bus completely and they stuck themselves in a corner - they can't walk back from that.
How is it that the CFO arranged for the illicit inventory push into Philidor? It strikes me that someone else in management would have done something like that, then asked the controller to approve, who then asked the CFO to approve the accounting.
And how is it that "it would have been appropriate" to double count if the inventory had arrived there without foreknowledge of the Philidor option transaction. It would have been exactly the same inventory. Valeant is getting bad advice.
And HS knows it.
- Shoham Mar 22, 2016 at 11:53: AM
Shoham
Member
How is this not accounting fraud?
"Lots of companies have accounting scandals that involve recognizing revenue earlier than they should have, but Valeant is breaking some new ground in recognizing that revenue twice. Here is the stylized math:
The proper accounting was the approach labeled "Sell-through." Valeant's approach was some combination of "Sell-in" and "Why not both?" Oops!" from Bloomberg article.
http://www.bloombergview.com/articles/2016-03-21/valeant-sold-some-drugs-twice?cmpid=yhoo.headline
It is.
When I first saw the Bloomberg story, I was thinking "no way" -- I may be out there with my GC talk, but this is even more extreme. So, I followed the link to the 8k filing, and, sure enough, in black over white, VRX's own words, there it was: A smoking gun, if there ever was one.
The amounts of this particular disclosure are still too small to, by themselves, collapse the company; but the mere existence of such practices should send a shiver down any investor, lender or auditor's back.
PWC is also, in my view, starting to take damage. They signed off on the fraudulent 2014 annual report. They ought to be extra vigilant in 2015 for this reason even if all else was fine.
Dan
Fabulous discussion here. This thread is a gem.
Following up on this further
A while back there was posting on the Valeant Cafepharma board about level of inventory at Phillidor. It talks about offices filled with boxes of inventory, racks popping up everywhere to store inventory. I was thinking this was channel stuffing to show a breakout quarter, which is bad enough. But if in addition they also counted this revenue twice...
The same thread talks about levels of inventory in different places. Can they have counted most of it twice?
Wow, if these questions are even a possibility, the executives need to go to jail.
Dan, do you recall the last major company to be hit with a GC. I don't as I never really followed anyone so closely. What's it take to get an auditor to issue that death sentence? Do we think the delay in filing is merely negotiation over GC or is VRX scrambling to get ready to fight back?
I'm still betting on the issue being impairment of goodwill and intangibles, as outlined in my first post and subsequent previous posts. There has to be a huge hit here based on all that has come to light. The question is, what does this do to VRX? It's non cash and non P&L under GAAP. So does it trigger a GC by itself? I don't know - not my area of expertise. Impairment will dramatically reduce book value (make it more negative) but I bet nobody even cares about BV other than PWC.
Can you elaborate on the mechanics of how a GC opinion is arrived at?
This is fascinating stuff. Great distraction from our AGN/PFE deal
P551
- Shoham Mar 24, 2016 at 03:08: AM
Shoham
Member
Last major company to be hit with GC: I would go with Peabody Energy (BTU), the world's largest traded Coal producer (2015 Revenues = $6B). It got a GC from E&Y on March 15, 2016 -- 8 days ago.
(http://yahoo.brand.edgar-online.com...ex=2&dcn=0001064728-16-000157&nav=1&src=Yahoo)
Now, back to Valeant:
There was a vigorously stated defense of Valeant by a shareholder and Seeking Alpha contributor who says he was trained as a chartered accountant. He specifically counter-argued the Going Concern speculation (not sure if he was specifically referring to my words, or if others are also beginning to speculate that way; the Seeking Alpha article he referenced in that regards didn't say anything explicit about GC). Here is what he said:
- This is not about the going concern, as there is no way PWC would strike that fatal blow so prematurely. After all, interest cover is about 3x, even on prudent forecasts. All VRX has to do is defend their earnings and cash flow forecast, and the onus is on PWC to prove the forecast wrong. No auditor would take that risk. I can virtually guarantee this is not the reason for the delayed financial statements. Let me assure you, the audit delay is NOT about the ability of VRX to continue as a going concern.
- The more I think about it, this is about Goodwill and the Intangible assets.
(Sunil Shah, Seeking Alpha: http://seekingalpha.com/article/3960606-valeant-auditors-autopsy-resurrection)
- The more I think about it, this is about Goodwill and the Intangible assets.
(Sunil Shah, Seeking Alpha: http://seekingalpha.com/article/3960606-valeant-auditors-autopsy-resurrection)
Here is my point: It doesn't matter how bad the Audited Financials look, even if the Goodwill is impaired all the way to $0. Even if it includes huge, previously undisclosed, liabilities (such as insurance fraud clawbacks), or massive restatement, or fraud admission, or anything horrible you could imagine. As long as it has no GC, Valeant would have released it. Negotiating with PWC to take some of the edge off, and meanwhile missing the deadline and going into default makes no sense whatever is in there (short of GC). Even if it was possible, by some Sith Lord mind control technique, to get PWC to take all the bad stuff out, Valeant is still worst off with a late sanitized report than a timely ugly one.
The debtholders, in exchange for not liquidating the company (just yet), are asking for some very substantial amounts of cash. That cash is at the expense of the share holders. More critically, it is cash that many other stakeholders (critical employees, distributors, insurers, vendors, regulators, customers, etc.) will be demanding as the price of their participation in any turnaround plan. Depleting the very finite pool of available cash could easily be the difference between a viable turnaround plan and an impossible one.
The price of releasing a really ugly (but not GC) audited report is, at worst, additional damage to the stock price -- but the company (assuming that, indeed, it is not in GC territory) would soldier on and live to fight another day. The price of failing to release an audited report could easily be the end of the equity holders. Therefore, it is my conclusion, that the only explanation for Valeant voluntarily absorbing all this pain and mortal risk that failing to release the audited statements entails, is that there is, indeed, a GC.
I do want to add some additional possibilities that appear alternative to GC, but, in fact are not:
But first, a few more words about auditor report. As readers here remember, the third sentence of a standard audit report says that the audit was successful. All that means is that the auditor is signing off that what's in the report is truthful and a fair representation of reality (even if that reality is horrible, the audit should still be successful). The accounting lingo is "Unqualified." Even if there is a GC, the report should still be "unqualified." There are two rarely seen alternatives to "unqualified": "Qualified" and "Adverse". To me, either is even worst than GC. They mean that management did not fully co-operate with the audit and therefore the auditor is not signing off. Any audit report that carries the words "Qualified," "Adverse," or "Going Concern" is referred to as "unclean" and automatically breaks all bond covenants.
(Qualified means that they are signing off on parts of the report, but not the whole report -- but it's still "unclean." Adverse means they are not signing off on anything. In practice "Adverse" never happens. The auditor resigns or is fired. In any event, the firing or resignation of an auditor is always problematic; and if it happens after the deadline it is viewed exactly the same as "Adverse.")
So, conceivably, the Valeant audit report might not specifically be GC, it might also be Qualified or Adverse (or the auditors have resigned or been fired) and have the same overall effect (of breaking covenant, and therefore Valeant preferring to be late than to release). However, as I argued in prior posts, anything incurable (unlikely to be fixed within the contractually mandated cure period -- typically 30 days) that breaks covenant immediately graduates to GC, since the company can't keep the obligations that breaking covenant impose. Therefore, any Qualified or Adverse opinion would automatically also become a GC.
(There is a tortured possibility, that may very well be in play here, where Valeant is holding off on releasing the GC-containing audited report, meanwhile negotiate with the lenders to agree -- in exchange for cash and/or other considerations -- that they won't pull covenant for a Qualified, or otherwise covenant-breaking report (for instance breaching some ratio) -- and thus cut off the graduation of such into GC. They then can show PWC that, thanks to the newly negotiated terms, they are not GC after all so PWC agrees to take off the GC; at which point Valeant release a report that is no longer GC and no longer break the (renegotiated) covenants.)
The reason Qualified (let alone Adverse) is so rare, obviously, is that no management, in it's right mind, would ever fail to co-operate with the auditors. But, there is a big exception to that. If some members of management are under threat of criminal sanctions, then protecting their own skin trumps co-operating with the auditors. Essentially, they are "taking the fifth" (refuse to talk). They may be fired, or asked to resign, or be subject to civil judgements, but, from their point of view, those eventualities are not as bad as a criminal conviction.
In light of the recent revelations, I think this possibility is definitely on the table!
Good night everyone!
Dan.
(PS: Per question about the mechanics of Going Concern. Wiki has a good article on that, Readable by non-professionals, while technically accurate: https://en.wikipedia.org/wiki/Going_concern )
PCW is awaiting management's approval before signing off on the audit. PCW is also assessing giving Valeant a GC...
http://www.marketwatch.com/story/co...re-slim-but-not-none-2016-03-24?siteid=yhoof2
http://www.marketwatch.com/story/co...re-slim-but-not-none-2016-03-24?siteid=yhoof2
Dan,
The FT article on Valeant out the last 24-48hrs suggesting that Howard Schiller being thrown under the bus was an attempt to find a scapegoat who could be named for misleading PWC for the 2014 accounts, which makes it all easier.
To me, this suggests that the AHC is still key.
As to the accounting fraud, I'm looking over my posts here but don't see it here. I actually posted quite a bit (on SA and elsewhere) about the $58mm restatement after the Feb29 release because the two ways that could have happened were
The other aspect of Writedowns of Goodwill and Intangibles is still out there.
Most importantly, as long as the new incoming CEO is comfortable with what he is getting into (economics and also the drug/business portfolio he would oversee), and as long as whatever gets done does not cause a default or major cashflow issues, anybody taking that responsibility will want to kitchen sink as much of the "old ways" as possible. That would include 'adjusted cash EPS', as much goodwill as possible, etc. Doing so would make the resulting ROE look better and would set lower expectations going forward.
Just some thoughts...
The FT article on Valeant out the last 24-48hrs suggesting that Howard Schiller being thrown under the bus was an attempt to find a scapegoat who could be named for misleading PWC for the 2014 accounts, which makes it all easier.
Mr Schiller was blindsided by the public accusation, according to people close to him, but responded to the claims with a strongly worded denial. He has resisted requestsfrom Valeant’s directors to resign his seat on the board.
The attempt to defenestrate him is partly down to a tussle between Valeant and its auditor, PwC, which is reluctant to sign off the annual accounts unless somebody is blamed for providing it with erroneous figures, according to people briefed on the negotiations. Given that Valeant misstated revenues for two separate quarters, there are a series of financial statements that, in the company’s own words, “should no longer be relied on” — and many of them bear a stamp of approval from PwC. http://bit.ly/1pWWg41
The Fortune article out by MC - an Ackman puff-piece yet again - suggests the board is "scared" of the AHC findings - i.e. there is a possibility that the D&O insurance might not cover it?The attempt to defenestrate him is partly down to a tussle between Valeant and its auditor, PwC, which is reluctant to sign off the annual accounts unless somebody is blamed for providing it with erroneous figures, according to people briefed on the negotiations. Given that Valeant misstated revenues for two separate quarters, there are a series of financial statements that, in the company’s own words, “should no longer be relied on” — and many of them bear a stamp of approval from PwC. http://bit.ly/1pWWg41
To me, this suggests that the AHC is still key.
- The board needs to find the smoking gun. Howard Schiller is not taking the fall (or at least not yet; and if he does, it probably wouldn't be without a great big payoff). Which means the board needs to find someone who takes the blame. The board probably made a mistake by blaming Schiller, former CFO and one of the directors (and I'm going to bet that was a decision between Ingram, Pearson, and Ackman) before making sure Schiller was on board with it, but now that they have done it, they need to find someone says "mea culpa." Maybe they can pay off the CC, Pearson is on his way out - he can take the blame for "tone from the top", and the board can ask shareholders to eject HS at the next AGM because he is not admitting responsibility.
- The Fortune piece tells us that the AHC is crucial to the board and CEO/CFO being able to sign off on the 10K. PWC may be able to but the board/CFO/CEO can't easily without an AHC or it risks a "qualified."
- If PWC needs to find a scapegoat for 2014 because they signed off on it, and the company has already decided that every quarter since 'may not be able to be relied upon' then PWC needs the board to accept both PWC and the AHC.
As to the accounting fraud, I'm looking over my posts here but don't see it here. I actually posted quite a bit (on SA and elsewhere) about the $58mm restatement after the Feb29 release because the two ways that could have happened were
- Complete oversight - the person booking the consolidation mid Q4 2014 thought that Philidor was a complete 3rd party entity and had no insight into the fact that it was a Valeant operation from the outset (which it was - make no mistake)
- It was deliberately masked in order to boost Q4 revenues reportable at the parent company. This would entail taking a company which had $53mm of sell-through plus increased inventory for the ENTIRE year and at the last moment adding another $58mm of inventory.
The other aspect of Writedowns of Goodwill and Intangibles is still out there.
- The issue of "tone at the top" and Mike Pearson's about-face about M&A and price hikes, followed by a lowering of 2016 forecasts, suggests that some of the intangibles and goodwill are impaired.
- The "other accounting issues" which remain to be resolved are likely not things which haven't been checked but more about "policy". My guess is that might include things like PPA.
- Worse, it might mean dissatisfaction with the current method of "adjusted cash EPS" reporting because the lack of amortization makes the visible tax rate quite low (and even if they pay no more taxes, it wouldn't hurt Valeant to "show" a higher tax rate), and it would bring "adjusted cash EPS" lower - back towards GAAP EPS. This is probably OK. What most people don't realise is that without M&A, GAAP EPS and adjusted cash EPS were going to iterate towards each other to the upside over the next few years anyway.
Most importantly, as long as the new incoming CEO is comfortable with what he is getting into (economics and also the drug/business portfolio he would oversee), and as long as whatever gets done does not cause a default or major cashflow issues, anybody taking that responsibility will want to kitchen sink as much of the "old ways" as possible. That would include 'adjusted cash EPS', as much goodwill as possible, etc. Doing so would make the resulting ROE look better and would set lower expectations going forward.
Just some thoughts...
Check out the following article:
http://247wallst.com/investing/2016/03/25/the-5-most-shorted-nyse-stocks-pfizer-surges-to-the-top/
PFE short interest has increased significantly recently. This is a good indicator that the arbs that have been "holding off" are now starting to get into the PFE/AGN deal. I expect the spread or premium to start to reduce here - with a sizable reduction once the Teva deal closes in a few months.
While the latter comment is not news, the short interest increasing is new and is a good sign that the Street sentiment is starting to change. There is also a large amount of open interest in the Sept 2016 options contracts, which makes sense for the vague "second half" of 2016 language that has been floated in terms of closing (although unlike short interest there is no easy way to gauge open interest changes in options contracts).
Of course this post comes from the guy in the "more likely to happen than not" camp so maybe I'm seeing what I want to see (But, classic merger arbitrage strategy is on my side based on this recent surge in short interest in PFE).
For those interested in a primer on merger arbitrage, check out the following:
https://ibkb.interactivebrokers.com/article/2132
P 551
P.S. Dan, any thoughts from your point of view?
http://247wallst.com/investing/2016/03/25/the-5-most-shorted-nyse-stocks-pfizer-surges-to-the-top/
PFE short interest has increased significantly recently. This is a good indicator that the arbs that have been "holding off" are now starting to get into the PFE/AGN deal. I expect the spread or premium to start to reduce here - with a sizable reduction once the Teva deal closes in a few months.
While the latter comment is not news, the short interest increasing is new and is a good sign that the Street sentiment is starting to change. There is also a large amount of open interest in the Sept 2016 options contracts, which makes sense for the vague "second half" of 2016 language that has been floated in terms of closing (although unlike short interest there is no easy way to gauge open interest changes in options contracts).
Of course this post comes from the guy in the "more likely to happen than not" camp so maybe I'm seeing what I want to see (But, classic merger arbitrage strategy is on my side based on this recent surge in short interest in PFE).
For those interested in a primer on merger arbitrage, check out the following:
https://ibkb.interactivebrokers.com/article/2132
P 551
P.S. Dan, any thoughts from your point of view?
Check out the following article:
http://247wallst.com/investing/2016/03/25/the-5-most-shorted-nyse-stocks-pfizer-surges-to-the-top/
PFE short interest has increased significantly recently. This is a good indicator that the arbs that have been "holding off" are now starting to get into the PFE/AGN deal. I expect the spread or premium to start to reduce here - with a sizable reduction once the Teva deal closes in a few months.
While the latter comment is not news, the short interest increasing is new and is a good sign that the Street sentiment is starting to change. There is also a large amount of open interest in the Sept 2016 options contracts, which makes sense for the vague "second half" of 2016 language that has been floated in terms of closing (although unlike short interest there is no easy way to gauge open interest changes in options contracts).
Of course this post comes from the guy in the "more likely to happen than not" camp so maybe I'm seeing what I want to see (But, classic merger arbitrage strategy is on my side based on this recent surge in short interest in PFE).
For those interested in a primer on merger arbitrage, check out the following:
https://ibkb.interactivebrokers.com/article/2132
P 551
P.S. Dan, any thoughts from your point of view?
http://247wallst.com/investing/2016/03/25/the-5-most-shorted-nyse-stocks-pfizer-surges-to-the-top/
PFE short interest has increased significantly recently. This is a good indicator that the arbs that have been "holding off" are now starting to get into the PFE/AGN deal. I expect the spread or premium to start to reduce here - with a sizable reduction once the Teva deal closes in a few months.
While the latter comment is not news, the short interest increasing is new and is a good sign that the Street sentiment is starting to change. There is also a large amount of open interest in the Sept 2016 options contracts, which makes sense for the vague "second half" of 2016 language that has been floated in terms of closing (although unlike short interest there is no easy way to gauge open interest changes in options contracts).
Of course this post comes from the guy in the "more likely to happen than not" camp so maybe I'm seeing what I want to see (But, classic merger arbitrage strategy is on my side based on this recent surge in short interest in PFE).
For those interested in a primer on merger arbitrage, check out the following:
https://ibkb.interactivebrokers.com/article/2132
P 551
P.S. Dan, any thoughts from your point of view?
- Shoham Mar 31, 2016 at 02:41: AM
Shoham
Member
Spread is an astounding $65, hovering around record high level; so, still less likely than not (even more less-likely-than-not than before
); whatever the tea leaves are saying.Just think about it: There are about 400M AGN shares out. The spread is $65. This means -- if you believe that the deal will close -- that there is $26B worth of arbitrage just waiting to be picked up -- that's 3 times what Valeant is worth (I mean 3 times their market cap; their worth, in my opinion, is south of $0). If our dear friend Ackman were to buy exactly as many shares of AGN as he did the last time around and just wait for the arbitrage to close, he will make more money than he lost on Valeant (and it wouldn't even be insider trading
, and also be much less headache).Which do you think is more plausible: That there is $26B just sitting on the floor waiting to be picked up and everyone is too busy to bother; or that the spread is there because the market is skeptical of the transaction closing?
Dan.
- Shoham Mar 31, 2016 at 05:55: AM
Shoham
Member
(Regarding Valeant)
1. Howard Schiller (ex-CFO, now accused by Valeant of improper accounting) is dirty. I have a hard time thinking of him as being thrown under the bus, when he amply belongs there in the first place. (Of course, those who threw him belong there no less).
2. Tanya Carro (ex-controller) is dirty. For all practical (accounting) purposes, she owns the Philidor debacle.
3. Michael Pearson (soon-to-be-ex CEO) is one big fraud. All roads lead to him. This "tone from the top" scofflaw culture was MP first, everyone else (including Schiller) second.
All 3 of them will end up in prison. Skilling and Fastow (Enron's CEO and CFO) ended up with long prison sentences for lesser, in my opinion, offenses (and before Sarbanes-Oxley made those transgressions explicitly criminal), and lesser losses. ("all" Enron ever did was use complex, and ultimately-determined unallowable, accounting tricks to hide losses from shareholders; Valeant (to include Philidor) did all that as well as lie to pharmacy boards, sell drugs without a license, systematically falsify prescriptions, commit massive insurance fraud, insider trading, material "erroneous" CEO compensation, and the list goes on and on -- with dollar amounts that dwarf anything Enron ever had access to). There is no shortage of prosecutors-want-to-be-politicians who would love to build their credentials by sending those guys to prison -- and they'll succeed.
Schiller thinks (hopes) that if he plays his cards right, he will secure a get-out-of-jail-free coupon in return for nailing Pearson. That's the only explanation I can provide for his refusal to resign from the board (see prior post for more detailed reasoning). I don't think the future prosecutors will suffice themselves with just Pearson (who might conveniently check himself into a hospital with another pneumonia bout if things get too hot), they'll want all 3 (and maybe 1-2 of the BQ6/Philidor principals and/or Jonah Shacknai, originally of Medicis). There will be no shortage of lower-level guys who will give the prosecutors everything they need for a GooJF coupon. (Heck just the information Hempton, Short, or even just you or me, gathered from entirely public sources may be enough to secure convictions -- there is just so much, and it's just so blatant).
4. The Valeant Board of directors is dirty.
5. Bill Ackman is dirty (sorry, but having a baby face and earnest-sounding marathon teleconferences does not cleanse dirtiness).
They won't be prosecuted, but they sure will take a public beating.
I just don't buy that all of those highly-credentialed long-serving directors were hypnotized by MP to let him do whatever he wants unchallenged. They knew it was a house of cards, unsustainable, pyramid scheme (and if they missed it, Allergan had a dead-on-accurate presentation that was broadcasted on all channels, exposing the Valeant shenanigans in great details -- so they can't say that nobody told them). They won't be prosecuted because no one can prove, beyond reasonable doubt, that they weren't hypnotized by MP. But, I think that any clear thinker should be able to see that they wanted to ride this pyramid scheme for one more round (which originally was supposed to be the acquisition and dismemberment of Allergan) before unloading and leaving the hapless retail investors holding the bag.
6. PWC is clean, but they were hypnotized by MP.
The 2014 audited financials that PWC signed off on is now an albatross on their neck (and, I speculate, a farther reason they are not going to sign a clean 2015 audit any time soon). The official story is that Valeant gained control of Philidor on December 15, 2014 (when they acquired the weird $0 option) and was consolidated subsequently. For 2014, that would only be 15 days worth of consolidation (and half of those are weekends and holidays). The whole 2014 restatement business is around the fact that Valeant was "channel stuffing" Philidor just prior to 12/15/2014 in anticipation of gaining control (which is a no-no). Not a ton of money, but still a restatement. HOWEVER, it is my opinion, that any non-hypnotized auditor would have insisted that Philidor was never an independent entity and should have been consolidated from the day it was created (it never had any other client, nor was it even trying to get any; it was fully financed by Valeant; it had Valeant employees on the premises directing policies; and so on and so on. There is just no way any non-hypnotized auditor will accept that Philidor was ever an independent organization!). PWC missed that! They probably didn't even try to audit anything Philidor in 2014 (since it was only consolidated for 15 days) and just relied on management (Valeant) representations as to materiality (in plain English: Valeant told PWC that for the 15 days in 2014 that Philidor was under acknowledged Valeant control, the total business that was done by Philidor was too small to be worth doing an audit, and PWC agreed). If PWC had tried to audit Philidor (which they, presumably, did; or at least tried, in 2015 and still now), they would have found so many transgressions, they would have ran out of the building in horror. Now, with the hypnosis worn off, PWC has, belatedly, realized that Philidor should have been consolidated for ALL of 2014 (and also 2013, but there weren't a lot of Philidor activities in 2013), that Philidor is an auditor's house of horror, and that they signed off on the Valeant 2014 financial report without ever auditing Philidor. Big boo-boo.
They can't take back their 2014 signature (actually, they can, and did; that's what a restatement does, but that puts them in a dicey situation because anyone who relied on the audited 2014 financials and bought Valeant stocks in 2015 can now have a claim against PWC). But they sure as hell won't sign the 2015 in a hypnotized state.
7. Valeant is not profitable now, never was in the past, and is not on a trajectory toward eventual profitability (and never was on such trajectory).
I realize this is a sweeping statement. It is but a corollary of my prior posts observation that they overpaid for assets, used borrowed money only, financed with expensive cash, and subsequently destroyed value. They were making debt service payments using newly borrowed money. With each acquisition, they buried, within eye-popping large "one-time" "restructuring charges" a whole lot of operating expenses. That's how they kept their "cash EPS" looking positive (and with those insane Good Will assets, even their GAAP numbers didn't look as horrendous as they should have). All those remaining Valeant believers who think that at $28 Valeant is a great buy because of it's huge "cash flow" should think again. Those historical (and now withdrawn) cash flow numbers are the product of fake accounting. There is a name to this "pay debt with newly borrowed money" technique. It is called "Kiting" and it is also a form of financial fraud (you can add it to the above Valeant-is-worst-than-Enron list of financial crimes). Whereas before, it was done through complex and subtle accounting tricks; this month they seemed to have dropped the pretenses. One day before missing the grace period for audited financials (March 14, 2016) and being cut off from their lenders, they openly and publicly maxed out all their revolving lines of credit. It is little wonder that they now loudly proclaim in every pronouncement that they have enough liquidity to last through 2016 (of course they do, but not from operations; from kiting).
....
And, with all that. you think that I am going to put much stock in an Ad Hoc Committee formed by, and composed of, that same board?????
Dan.
Dan:
I just wanted to thank you for all of your posts in this thread. Fascinating reading, and I look forward to your future book on the Valeant debacle.
Signed,
a former Allergan employee (I left just before Valeant came a-calling).
I just wanted to thank you for all of your posts in this thread. Fascinating reading, and I look forward to your future book on the Valeant debacle.
Signed,
a former Allergan employee (I left just before Valeant came a-calling).
Thanks Dan. Finally someone is saying what is has been obvious for at least 3 months. When this finally comes to light there will be books and stories (movies?) written about this company and how they fooled everyone, but like most frauds the clues are there if you're not blinded by the future's so bright gotta wear shades glow that Wall St. put on this pig.
It will also be interesting to see where Ackman comes out in all this mess. I wonder if Mike will turn on him (prosecutors would love to nail Ackman) by providing evidence of insider trading on the Allergan deal.
It will also be interesting to see where Ackman comes out in all this mess. I wonder if Mike will turn on him (prosecutors would love to nail Ackman) by providing evidence of insider trading on the Allergan deal.
Will FTC lawsuit delay Teva divesture and hence Pfizer merger?http://www.bloomberg.com/news/artic...th-generic-deals-u-s-says?cmpid=yhoo.headline
Hi Dan,
Where can we find the information that Valeant publically maxed out their remaining revolver credit the day before they missed their 10-K filing deadline?
Where can we find the information that Valeant publically maxed out their remaining revolver credit the day before they missed their 10-K filing deadline?
Spread is an astounding $65, hovering around record high level; so, still less likely than not (even more less-likely-than-not than before
Just think about it: There are about 400M AGN shares out. The spread is $65. This means -- if you believe that the deal will close -- that there is $26B worth of arbitrage just waiting to be picked up -- that's 3 times what Valeant is worth (I mean 3 times their market cap; their worth, in my opinion, is south of $0). If our dear friend Ackman were to buy exactly as many shares of AGN as he did the last time around and just wait for the arbitrage to close, he will make more money than he lost on Valeant (and it wouldn't even be insider trading
Which do you think is more plausible: That there is $26B just sitting on the floor waiting to be picked up and everyone is too busy to bother; or that the spread is there because the market is skeptical of the transaction closing?
Dan.
This analysis seems so logical and sound but how could two very powerful CEOs get this one so wrong? How could they exit without looking like "bad". My concern is that (1) the government is too slow to act to block the deal and (2) because the CEOs said this deal will close, in the absence of something out of their control blocking the deal then this deal will close. Are there examples of Shareholders blocking a comparable deal?
I admittedly am no expert on Wall St so I would very much welcome any explanation for why my analysis is wrong.