The troubles for Valeant Pharmaceuticals do not seem to end as Bill Ackman exited the company, bearing a loss of $2.8 billion. Ackman, who was once the most outspoken cheerleader for the company will also step down from the board. Pershing Square Capital Management, a hedge-fund owned and controlled by Ackman, suffered great loss owing to the shares of the controversial pharma company. While he has been a polarizing figure in the world of investments, his decision to cut ties from Valeant shows that he has given up on the dream of ‘fixing’ the company. Here are 3 reasons why Ackman exited Valeant.
By the end of 2016 alone, Pershing Square had lost close to $2.8 billion in Valeant’s shares. The overall loss till the exit date could be much higher. Ackman, who had earlier invested great money as well as time in Valeant, said that even if the stock doubled from here, it would not move a needle for Pershing Square. In an official statement, the firm said, “At its current market value, the Valeant Position represented 1.5% to 3% of the various Pershing Square funds; however, the investment required a disproportionately large amount of time and resources.”
Poor share performance
The shares of the company have tumbled by more than 90 percent off their peak reached in August 2015, at $263.81. Pershing Square held 18.1 million shares of the company with an additional 9.1 million shares with call options. The price paid for each share was $166.11 which is significantly higher than the price at which the stocks were sold. On Tuesday, the shares witnessed a new low, going down to $10.30 during early trading hours after sliding 15 percent from the closing price of $12.11 on Monday. Ackman’s fund likely sold the stock for $11.25 per share.
End of hope
Ackman was an advocate for Valeant, even during the toughest times in the company’s history. After slews of insider trading, unethical pricing practices and controversy over the mail-order drugs delivery system, Ackman held his ground and supported his investment in the company. He once predicted the stock to reach $448 per share by 2019 over a conference call where he defended his investments for hours. However, after controversies and allegations, a new board of the company is unable to make any changes to the looming debt crisis and investors have lost confidence in its abilities to rise from its troubles.
Ackman calls Valeant ‘the worst performance’ in his career but he has previously lost money on J.C. Penny and Herbalife along with Target where he lost more than 90 percent of his investment. Restaurant Brand International and General Growth Properties have been his winning investments.