Valeant Pharmaceuticals International Inc.

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#21
I can only say what goes around comes around. Think lesson to learn is that best that investors don't link ego to the mouth (or in our case the keyboard)

Ackman’s Horror Week Gets Worse as Valeant Fall Threatens Rating
2016-03-17 22:06:41.928 GMT


By Elizabeth Fournier and Beth Jinks
(Bloomberg) -- Bill Ackman’s bad week just keeps getting
worse.
After watching one of his top stocks, Valeant
Pharmaceuticals International Inc., get mauled again, Ackman now
confronts another indignity: news that the publicly traded
security of his hedge fund, Pershing Square Holdings Ltd., might
be headed for the junk-bond yard.
Only two days after Valeant handed Ackman a paper loss of
about $764 million related to the common shares he owns,
Standard & Poor’s warned it might cut Pershing Square’s credit
rating to the cusp of junk-bond status.
The development is the latest in the months-long saga
surrounding Valeant and Ackman, who’s long been one of the drug
company’s biggest champions. Since August, when Valeant began
the slide that has now erased almost 90 percent of its market
value, the fortunes of the company and the hedge fund manager
have become increasingly intertwined.
On Thursday, as Valeant sank an additional 12 percent,
Ackman reiterated his support of the company -- and said his
investors are mostly standing by Pershing Square Capital
Management. Ackman’s fund is Valeant’s third-biggest shareholder
with a stake of about 9 percent, including 6.3 percent of the
outstanding common shares.

Valeant Problem

Valeant is a problem, but one that he knows how to handle,
Ackman told CNBC Thursday, adding that widespread redemptions
from Pershing Square Capital weren’t happening, and investors
had pulled just 2 percent of assets from the fund on Feb. 15,
the latest opportunity they had to redeem. Their next chance to
withdraw funds will come in mid May.
Still, S&P warned that it may cut its debt rating on the
listed arm of Pershing Square, putting its BBB rating on the
company on watch for a potential downgrade after the plunge in
Valeant eroded its net asset value over the past five months,
according to a statement from the ratings agency Thursday. Its
current grade is two levels above speculative -- or junk -- a
rating that would mean the company faces major ongoing
uncertainties, or exposure to conditions that could make it less
able to meet its financial commitments.
A spokesman for Pershing Square declined to comment on the
potential downgrade.
After months of turmoil, Valeant’s -- and Ackman’s -- woes
intensified on March 15, when the drugmaker cut its 2016
guidance and warned it may breach some of its debt agreements if
it can’t file its annual report on time. During a two-hour call
with analysts, Chief Executive Officer Mike Pearson, not long
returned from medical leave, was questioned about why he was the
right man to lead the company.
As Pearson outlined his plans to “earn back the
credibility” of Valeant, the company corrected a press release
it had issued hours before, saying that one measure of earnings
would actually be lower than it had stated.
Pershing Square Capital responded by telling investors it
planned to take a much larger role at Valeant, acknowledging
that investors have lost “total confidence in the company,”
contributing to the stock drop. An early sign of Pershing
Square’s increased involvement came last week, when Vice
Chairman Steve Fraidin joined Valeant’s board.
Despite the slide in the stock since Pearson returned to
the helm of the drugmaker just two weeks ago, Pershing Square
Capital remains supportive of the Valeant CEO, according to a
person familiar with the situation, who asked not to be
identified discussing private information.

Hedge Fund

When Pershing Square posted its weekly performance through
March 15, it wasn’t pretty: net asset value per share fell to
$15.42, compared with $20.96 at the end of 2015 -- a 26.4
percent drop. Pershing Square also said Wednesday it cut its
stake in Mondelez International Inc. to 5.6 percent, as the
maker of Oreo cookies was performing better than other its
investments. The block sale of 20 million shares was “for
portfolio management purposes only,” according to a statement.
Despite Ackman’s conviction that he knows how to handle
Valeant, investors continue to shun the company. Shares closed
Thursday at their lowest price since January 2011.

--With assistance from Zachary Tracer, Cynthia Koons, Paula
Schaap and Sridhar Natarajan.

To contact the reporters on this story:
Elizabeth Fournier in London at efournier5@bloomberg.net;
Beth Jinks in San Francisco at bjinks1@bloomberg.net
To contact the editors responsible for this story:
Jeffrey McCracken at jmccracken3@bloomberg.net
Elizabeth Wollman, Drew Armstrong
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
Reply
#21
I can only say what goes around comes around. Think lesson to learn is that best that investors don't link ego to the mouth (or in our case the keyboard)

Ackman’s Horror Week Gets Worse as Valeant Fall Threatens Rating
2016-03-17 22:06:41.928 GMT


By Elizabeth Fournier and Beth Jinks
(Bloomberg) -- Bill Ackman’s bad week just keeps getting
worse.
After watching one of his top stocks, Valeant
Pharmaceuticals International Inc., get mauled again, Ackman now
confronts another indignity: news that the publicly traded
security of his hedge fund, Pershing Square Holdings Ltd., might
be headed for the junk-bond yard.
Only two days after Valeant handed Ackman a paper loss of
about $764 million related to the common shares he owns,
Standard & Poor’s warned it might cut Pershing Square’s credit
rating to the cusp of junk-bond status.
The development is the latest in the months-long saga
surrounding Valeant and Ackman, who’s long been one of the drug
company’s biggest champions. Since August, when Valeant began
the slide that has now erased almost 90 percent of its market
value, the fortunes of the company and the hedge fund manager
have become increasingly intertwined.
On Thursday, as Valeant sank an additional 12 percent,
Ackman reiterated his support of the company -- and said his
investors are mostly standing by Pershing Square Capital
Management. Ackman’s fund is Valeant’s third-biggest shareholder
with a stake of about 9 percent, including 6.3 percent of the
outstanding common shares.

Valeant Problem

Valeant is a problem, but one that he knows how to handle,
Ackman told CNBC Thursday, adding that widespread redemptions
from Pershing Square Capital weren’t happening, and investors
had pulled just 2 percent of assets from the fund on Feb. 15,
the latest opportunity they had to redeem. Their next chance to
withdraw funds will come in mid May.
Still, S&P warned that it may cut its debt rating on the
listed arm of Pershing Square, putting its BBB rating on the
company on watch for a potential downgrade after the plunge in
Valeant eroded its net asset value over the past five months,
according to a statement from the ratings agency Thursday. Its
current grade is two levels above speculative -- or junk -- a
rating that would mean the company faces major ongoing
uncertainties, or exposure to conditions that could make it less
able to meet its financial commitments.
A spokesman for Pershing Square declined to comment on the
potential downgrade.
After months of turmoil, Valeant’s -- and Ackman’s -- woes
intensified on March 15, when the drugmaker cut its 2016
guidance and warned it may breach some of its debt agreements if
it can’t file its annual report on time. During a two-hour call
with analysts, Chief Executive Officer Mike Pearson, not long
returned from medical leave, was questioned about why he was the
right man to lead the company.
As Pearson outlined his plans to “earn back the
credibility” of Valeant, the company corrected a press release
it had issued hours before, saying that one measure of earnings
would actually be lower than it had stated.
Pershing Square Capital responded by telling investors it
planned to take a much larger role at Valeant, acknowledging
that investors have lost “total confidence in the company,”
contributing to the stock drop. An early sign of Pershing
Square’s increased involvement came last week, when Vice
Chairman Steve Fraidin joined Valeant’s board.
Despite the slide in the stock since Pearson returned to
the helm of the drugmaker just two weeks ago, Pershing Square
Capital remains supportive of the Valeant CEO, according to a
person familiar with the situation, who asked not to be
identified discussing private information.

Hedge Fund

When Pershing Square posted its weekly performance through
March 15, it wasn’t pretty: net asset value per share fell to
$15.42, compared with $20.96 at the end of 2015 -- a 26.4
percent drop. Pershing Square also said Wednesday it cut its
stake in Mondelez International Inc. to 5.6 percent, as the
maker of Oreo cookies was performing better than other its
investments. The block sale of 20 million shares was “for
portfolio management purposes only,” according to a statement.
Despite Ackman’s conviction that he knows how to handle
Valeant, investors continue to shun the company. Shares closed
Thursday at their lowest price since January 2011.

--With assistance from Zachary Tracer, Cynthia Koons, Paula
Schaap and Sridhar Natarajan.

To contact the reporters on this story:
Elizabeth Fournier in London at efournier5@bloomberg.net;
Beth Jinks in San Francisco at bjinks1@bloomberg.net
To contact the editors responsible for this story:
Jeffrey McCracken at jmccracken3@bloomberg.net
Elizabeth Wollman, Drew Armstrong
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
Reply
#22
The plot continues, reminds me of the cockroach saying.

Valeant: Pearson Is Out, Ackman Is In, Controversy Continues
Reply
#22
The plot continues, reminds me of the cockroach saying.

Valeant: Pearson Is Out, Ackman Is In, Controversy Continues
Reply
#23
Press Statement of Howard Schiller, Former CFO and Former Interim CEO of Valeant Pharmaceuticals International, Inc. 

Valeant has 22,000 incredible employees and a collection of very strong franchises. While the challenges facing the Company are significant, I am confident that Valeant will prevail and emerge again as a very strong company.

As former CFO of the Company, I want to be very clear that the 8-K filed by the Company today, and the Company press release issued today, contain an incorrect statement. Contrary to the statement in the 8-K and press release, at no time did I engage in any improper conduct that relates to any restatement of revenue the Company is considering. In addition, at no time did I ever provide any incorrect information to the Audit and Risk Committee or the Company’s outside auditors regarding this accounting issue.

As a result of the fact that I did not engage in any improper conduct regarding this proposed restatement, I have respectfully declined the request from the Company’s Board to resign from the Board.

The Philidor sales transactions in Q4 2014, and the subsequent accounting treatment, was the result of a careful and reasoned accounting decision made by the Company’s Corporate Controller based on what she considered to be complete and accurate facts, and I was told by the Corporate Controller that the outside auditors reviewed the transactions in question. The accounting decision was not my decision, but I was advised of the decision and the rationale behind the decision by the Corporate Controller, and I agreed with the decision. The now-former Corporate Controller was incredibly experienced, she was trusted and respected by the Audit and Risk Committee, and she consistently received among the highest employee rankings inside the Company and strong support from the Company’s outside auditors.

My hope at this point is to see the Company recover from its challenges and for its employees and shareholders to once again prosper.

----------------

Looks like Mr Schiller refuses to be the scapegoat and disappear into the darkness.
Reply
#23
Press Statement of Howard Schiller, Former CFO and Former Interim CEO of Valeant Pharmaceuticals International, Inc. 

Valeant has 22,000 incredible employees and a collection of very strong franchises. While the challenges facing the Company are significant, I am confident that Valeant will prevail and emerge again as a very strong company.

As former CFO of the Company, I want to be very clear that the 8-K filed by the Company today, and the Company press release issued today, contain an incorrect statement. Contrary to the statement in the 8-K and press release, at no time did I engage in any improper conduct that relates to any restatement of revenue the Company is considering. In addition, at no time did I ever provide any incorrect information to the Audit and Risk Committee or the Company’s outside auditors regarding this accounting issue.

As a result of the fact that I did not engage in any improper conduct regarding this proposed restatement, I have respectfully declined the request from the Company’s Board to resign from the Board.

The Philidor sales transactions in Q4 2014, and the subsequent accounting treatment, was the result of a careful and reasoned accounting decision made by the Company’s Corporate Controller based on what she considered to be complete and accurate facts, and I was told by the Corporate Controller that the outside auditors reviewed the transactions in question. The accounting decision was not my decision, but I was advised of the decision and the rationale behind the decision by the Corporate Controller, and I agreed with the decision. The now-former Corporate Controller was incredibly experienced, she was trusted and respected by the Audit and Risk Committee, and she consistently received among the highest employee rankings inside the Company and strong support from the Company’s outside auditors.

My hope at this point is to see the Company recover from its challenges and for its employees and shareholders to once again prosper.

----------------

Looks like Mr Schiller refuses to be the scapegoat and disappear into the darkness.
Reply
#24
Another casualty with 45 years reputation down the drain due to ONE misstep... only the paranoid survives

By John Gittelsohn, Charles Stein and Margaret Collins
(Bloomberg) -- Robert Goldfarb will retire as chief
executive officer of Ruane, Cunniff & Goldfarb and co-manager of
the Sequoia Fund after losses from the firm’s investment in
troubled drugmaker Valeant Pharmaceuticals International Inc.
David Poppe, who co-managed the $5.6 billion fund with
Goldfarb, will become the lead manager and replace Goldfarb as
the firm’s CEO, according to a letter Wednesday from the money
manager.
“While we have beaten the market over the past decade,
through the end of 2015, our investment in Valeant has
diminished a record that we have built over two generations and
in which we take great pride,” the firm told shareholders in the
letter signed by Poppe and the Ruane Cunniff team.
The move ends a 45-year investing career during which
Goldfarb, 71, helped oversee one of the fund industry’s best
long-term records before Valeant started plunging in August. The
firm said in its letter that it will take a “more collaborative
approach” under Poppe that will give greater responsibility to
senior analysts.

“While our commitment to a value-oriented strategy grounded in
extensive primary research remains as strong as ever, the
Valeant experience has spurred a period of reflection,” the firm
said in the letter.

Biggest Holder

Ruane Cunniff was Valeant’s largest shareholder, with 10
percent of the outstanding shares as of Dec. 31, according to
data compiled by Bloomberg.
Valeant, which had grown to 29 percent of Sequoia’s
portfolio at the middle of last year, has been targeted by short
sellers who say the drugmaker used a mail-order pharmacy to
inflate sales figures. Charles Munger, billionaire Warren
Buffett’s longtime business partner, bashed Valeant in a
November interview, calling its strategy of acquiring rights to
treatments and boosting prices unsustainable and “deeply wrong.”

Things got worse last week, when Valeant lost more than half its
market value in one day after the company cut its 2016 forecast,
reported a weak fourth quarter and said it risked breaching some
of its debt agreements if it can’t file its annual report in
time. The shares have lost 87 percent since reaching a closing
high of $262.52 in August.
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
Reply
#24
Another casualty with 45 years reputation down the drain due to ONE misstep... only the paranoid survives

By John Gittelsohn, Charles Stein and Margaret Collins
(Bloomberg) -- Robert Goldfarb will retire as chief
executive officer of Ruane, Cunniff & Goldfarb and co-manager of
the Sequoia Fund after losses from the firm’s investment in
troubled drugmaker Valeant Pharmaceuticals International Inc.
David Poppe, who co-managed the $5.6 billion fund with
Goldfarb, will become the lead manager and replace Goldfarb as
the firm’s CEO, according to a letter Wednesday from the money
manager.
“While we have beaten the market over the past decade,
through the end of 2015, our investment in Valeant has
diminished a record that we have built over two generations and
in which we take great pride,” the firm told shareholders in the
letter signed by Poppe and the Ruane Cunniff team.
The move ends a 45-year investing career during which
Goldfarb, 71, helped oversee one of the fund industry’s best
long-term records before Valeant started plunging in August. The
firm said in its letter that it will take a “more collaborative
approach” under Poppe that will give greater responsibility to
senior analysts.

“While our commitment to a value-oriented strategy grounded in
extensive primary research remains as strong as ever, the
Valeant experience has spurred a period of reflection,” the firm
said in the letter.

Biggest Holder

Ruane Cunniff was Valeant’s largest shareholder, with 10
percent of the outstanding shares as of Dec. 31, according to
data compiled by Bloomberg.
Valeant, which had grown to 29 percent of Sequoia’s
portfolio at the middle of last year, has been targeted by short
sellers who say the drugmaker used a mail-order pharmacy to
inflate sales figures. Charles Munger, billionaire Warren
Buffett’s longtime business partner, bashed Valeant in a
November interview, calling its strategy of acquiring rights to
treatments and boosting prices unsustainable and “deeply wrong.”

Things got worse last week, when Valeant lost more than half its
market value in one day after the company cut its 2016 forecast,
reported a weak fourth quarter and said it risked breaching some
of its debt agreements if it can’t file its annual report in
time. The shares have lost 87 percent since reaching a closing
high of $262.52 in August.
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
Reply
#25
Sounds like poor portfolio management. In hindsight they had plenty opportunity to rebalance even before valeant hit more than 10% of their portfolio. I would think for billion dollar fund that diversifying and rebalancing is the norm. they got too greedy this time?

berkshire still doing well right?
Virtual currencies are worth virtually nothing.
http://thebluefund.blogspot.com
Reply
#25
Sounds like poor portfolio management. In hindsight they had plenty opportunity to rebalance even before valeant hit more than 10% of their portfolio. I would think for billion dollar fund that diversifying and rebalancing is the norm. they got too greedy this time?

berkshire still doing well right?
Virtual currencies are worth virtually nothing.
http://thebluefund.blogspot.com
Reply
#26
Sequoia is a fund with strong heritage... something for value investors to learn

William J. Ruane (October 24, 1925 – October 4, 2005) was an American businessman, investor, and philanthropist.

Ruane graduated from the University of Minnesota in 1945 with a degree in electrical engineering and from Harvard Business School in 1949. He enlisted in the U.S. Navy and was on his way to Japan when World War II ended. He met Warren Buffett at an investment seminar with value investing guru Benjamin Graham and he and Buffett became lifelong friends. Buffett advised associates to invest with Ruane after he had closed out his initial partnership as they both employed Graham's value investing techniques.[1]

Ruane founded his own investment firm, Ruane Cunniff, with partner Rick Cunniff in 1970, and the same year they launched their flagship Sequoia Fund. Ruane's firm was renamed Ruane, Cunniff, and Goldfarb in 2004, when Robert Goldfarb became president. In 2008, the Sequoia Fund announced it would open its fund to new investors for the first time since 1982. -From Wikipedia

http://www.wsj.com/articles/two-of-five-...1446141695
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
Reply
#26
Sequoia is a fund with strong heritage... something for value investors to learn

William J. Ruane (October 24, 1925 – October 4, 2005) was an American businessman, investor, and philanthropist.

Ruane graduated from the University of Minnesota in 1945 with a degree in electrical engineering and from Harvard Business School in 1949. He enlisted in the U.S. Navy and was on his way to Japan when World War II ended. He met Warren Buffett at an investment seminar with value investing guru Benjamin Graham and he and Buffett became lifelong friends. Buffett advised associates to invest with Ruane after he had closed out his initial partnership as they both employed Graham's value investing techniques.[1]

Ruane founded his own investment firm, Ruane Cunniff, with partner Rick Cunniff in 1970, and the same year they launched their flagship Sequoia Fund. Ruane's firm was renamed Ruane, Cunniff, and Goldfarb in 2004, when Robert Goldfarb became president. In 2008, the Sequoia Fund announced it would open its fund to new investors for the first time since 1982. -From Wikipedia

http://www.wsj.com/articles/two-of-five-...1446141695
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
Reply
#27
Quit while you are ahead. Return money to investors and manage
own money. When you take someone money, somehow you are their 'bitch'
"... but quitting while you're ahead is not the same as quitting." - Quote from the movie American Gangster
Reply
#27
Quit while you are ahead. Return money to investors and manage
own money. When you take someone money, somehow you are their 'bitch'
"... but quitting while you're ahead is not the same as quitting." - Quote from the movie American Gangster
Reply
#28
(24-03-2016, 01:16 PM)BlueKelah Wrote: Sounds like poor portfolio management. In hindsight they had plenty opportunity to rebalance even before valeant hit more than 10% of their portfolio. I would think for billion dollar fund that diversifying and rebalancing is the norm. they got too greedy this time?

berkshire still doing well right?

BRK has underperformed the SPX by ~14% since 2009. Long term they are still ok, all thanks to the earlier years of outperformance.

In the long run outperformance by anyone is extremely unlikely, even buffet recommends that you stick 90% of your money in a low cost index fund.
Reply
#28
(24-03-2016, 01:16 PM)BlueKelah Wrote: Sounds like poor portfolio management. In hindsight they had plenty opportunity to rebalance even before valeant hit more than 10% of their portfolio. I would think for billion dollar fund that diversifying and rebalancing is the norm. they got too greedy this time?

berkshire still doing well right?

BRK has underperformed the SPX by ~14% since 2009. Long term they are still ok, all thanks to the earlier years of outperformance.

In the long run outperformance by anyone is extremely unlikely, even buffet recommends that you stick 90% of your money in a low cost index fund.
Reply
#29
Finally Ackman also throw in the towel Big Grin

$3 billion loss. Lucky its only small portion of his total fund portfolio. This counter can be called "hedge fund widow maker"

GFG still haven't thrown in the towel?

================================================
Pershing Square Dumps Valeant Stake, Ackman to Leave Board

Pershing Square Capital Management LP, the activist fund run by Bill Ackman, sold its entire stake in Valeant Pharmaceuticals International Inc. and said the billionaire would leave the board, ending a two-year investment in the beleaguered drugmaker.
Ackman and fellow Pershing Square representative Steve Fraidin will stay at the company until the annual meeting but not stand for re-election, according to a statement Monday.
The investment, which represents about 1.5 percent to 3 percent of Pershing Square’s funds, required “a disproportionately large amount of time and resources,” the statement said.
Valeant shares fell to $11.14 after the market closed in New York, down 8 percent from their closing price. Jefferies Group LLC offered Pershing Square’s 27.23 million Valeant shares for $11.10 to $11.40 a piece, according to a person familiar with the process who asked not to be identified discussing private information.
Virtual currencies are worth virtually nothing.
http://thebluefund.blogspot.com
Reply
#29
Finally Ackman also throw in the towel Big Grin

$3 billion loss. Lucky its only small portion of his total fund portfolio. This counter can be called "hedge fund widow maker"

GFG still haven't thrown in the towel?

================================================
Pershing Square Dumps Valeant Stake, Ackman to Leave Board

Pershing Square Capital Management LP, the activist fund run by Bill Ackman, sold its entire stake in Valeant Pharmaceuticals International Inc. and said the billionaire would leave the board, ending a two-year investment in the beleaguered drugmaker.
Ackman and fellow Pershing Square representative Steve Fraidin will stay at the company until the annual meeting but not stand for re-election, according to a statement Monday.
The investment, which represents about 1.5 percent to 3 percent of Pershing Square’s funds, required “a disproportionately large amount of time and resources,” the statement said.
Valeant shares fell to $11.14 after the market closed in New York, down 8 percent from their closing price. Jefferies Group LLC offered Pershing Square’s 27.23 million Valeant shares for $11.10 to $11.40 a piece, according to a person familiar with the process who asked not to be identified discussing private information.
Virtual currencies are worth virtually nothing.
http://thebluefund.blogspot.com
Reply
#30
There should be more losses than that because call options were bought and put options were sold during end 2014 - kinda like a double down, and might not have been accounted for their direct stock ownership. As of Jan2017, Val Pharm stock price was ~14usd --> so they would have definitely lost all the purchase price of their call option (6.75usd/option) and also have to pay for the strike price 60-14 = 46usd/put option.

http://assets.pershingsquareholdings.com...etter1.pdf

Generally, we purchase stocks outright to get exposure to a particular investment. In this case, we took advantage of the high volatility of Valeant stock, its extremely low share price, and the high degree of market uncertainty in choosing to build a position that offered us a compelling reward for the potential risk. Rather than purchase common stock outright, we increased our investment through a contemporaneous series of over-the-counter option transactions. The bulk of the increase in our investment in Valeant was created through the sale of European-style put  options struck at a $60 stock price, the purchase of American-style call options at a $95 stock price, and the sale of European-style call options at $165 stock price, all of which expire in January 2017. This derivative position gives us the upside of the stock from $95 per share up to $165 per share until January 2017. The net purchase price of the options was $6.75.

In summary, if the stock rises to $165 or more by January 2017, we will make more than 10 times our net investment over this period. Our downside is equal to the net purchase price of each option plus the decline in the stock price, if any, below $60 per share as of January 2017. By selling European-style put options, the shares cannot be put to us until January of 2017. By then, we estimate that Valeant’s stock price will be substantially in excess of $60 per share, potentially several multiples of this price. The upside of our derivative investment is approximately equal to that of owning the stock outright at $95 per share with 30% less downside, i.e., if the stock were to go zero, we would lose approximately $67 per share, (the put strike price plus the net option premium). By selling two options for every option that we have purchased, we have also minimized the effective cost of this investment and limited the impact of rapid time value decay which is characteristic of an outright option purchase on a highly volatile stock. In a worse-case scenario, which we believe is extremely unlikely to occur, we risked approximately 4% of additional capital on this investment while increasing our notional exposure to Valeant by about 6% of the portfolio.
Reply
#30
There should be more losses than that because call options were bought and put options were sold during end 2014 - kinda like a double down, and might not have been accounted for their direct stock ownership. As of Jan2017, Val Pharm stock price was ~14usd --> so they would have definitely lost all the purchase price of their call option (6.75usd/option) and also have to pay for the strike price 60-14 = 46usd/put option.

http://assets.pershingsquareholdings.com...etter1.pdf

Generally, we purchase stocks outright to get exposure to a particular investment. In this case, we took advantage of the high volatility of Valeant stock, its extremely low share price, and the high degree of market uncertainty in choosing to build a position that offered us a compelling reward for the potential risk. Rather than purchase common stock outright, we increased our investment through a contemporaneous series of over-the-counter option transactions. The bulk of the increase in our investment in Valeant was created through the sale of European-style put  options struck at a $60 stock price, the purchase of American-style call options at a $95 stock price, and the sale of European-style call options at $165 stock price, all of which expire in January 2017. This derivative position gives us the upside of the stock from $95 per share up to $165 per share until January 2017. The net purchase price of the options was $6.75.

In summary, if the stock rises to $165 or more by January 2017, we will make more than 10 times our net investment over this period. Our downside is equal to the net purchase price of each option plus the decline in the stock price, if any, below $60 per share as of January 2017. By selling European-style put options, the shares cannot be put to us until January of 2017. By then, we estimate that Valeant’s stock price will be substantially in excess of $60 per share, potentially several multiples of this price. The upside of our derivative investment is approximately equal to that of owning the stock outright at $95 per share with 30% less downside, i.e., if the stock were to go zero, we would lose approximately $67 per share, (the put strike price plus the net option premium). By selling two options for every option that we have purchased, we have also minimized the effective cost of this investment and limited the impact of rapid time value decay which is characteristic of an outright option purchase on a highly volatile stock. In a worse-case scenario, which we believe is extremely unlikely to occur, we risked approximately 4% of additional capital on this investment while increasing our notional exposure to Valeant by about 6% of the portfolio.
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