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Today, all the news about Valeant are reporting that Valeant received a takeover offer from Takeda Pharmaceutical Co. and TPG, which was then rejected by Valeant.
The stock soared since obviously someone else is valuing the company at a takeover offer, it must be cheap… However, even if that is true, the story does not sound logical to me.
First of all, Valeant said that it rejected the offer because Ackman wanted to give more time to Papa to turn around the company before any “giving-up.” However, according to the news, the company received the offer “1 or 2 months” before Joseph Papa was selected as the new CEO. That should take us back to around Feb. 22nd to late March, for Papa was installed around April 22nd to April 25th. The company was still swamped with its financial report preparation in February and March. Even if the private talk and agreement started before April 20th, it is still unthinkable that Valeant selected the CEO instantly after Pearson left and kept it as a secret for 2 months, during which time they clearly expected the stocks to fall as a result of the non-information. Therefore, my point is, the logic is not consistent here. Valeant said that it rejected the offer because Papa deserves a chance, but there was no “Papa” yet. In fact, the CEO change did not take effect until two months later. This is surely suspicious.
Secondly, I find it highly doubtful that anyone would offer Valeant a takeover bid. The company has debt three times its market cap. Anyone who is sensible in business would stay away from such situation. Suppose Takeda did somehow submitted an offer. I would be certain that Ackman would have influenced the board to accept it. For one, Ackman was very clear about what was going on. He suggested to the board that there was increasing bankruptcy risk and that was the reason he easily swayed the board to rid of Pearson. There was much fear going on within Valeant at the time. As a result, Ackman was heavily relied on and there is no doubt that whatever he decided about the takeover bid, was going to be the final decision. Thus, the question now has become, “Would Ackman would rejected the bid?” I believe definitely not. He acknowledged publicly that he regretted investing in Valeant. This to me shows that Valeant is nothing personal; if he could get out with a lesser loss, he definitely would jump on board. Secondly, Ackman abandoned the deal with Valeant about acquiring Allergan, and turned around sold Allergan to Actavis for a gain. This shows to me a typical Wall Street player that prioritizes financial gains. This is nothing wrong. My point is that, taking the bid would have been the sensible thing to do, by miles comparing to continuing running the company, with uncertainty of financial positivity, but certainty of effort and time. Thus, why didn’t he take offer? To give some chance to Papa? No, Ackman does not care about Papa or Valeant’s chance… He did not take it because there was no offer to be accepted.
Ackman has been in this game for years and years. I am hereby raising two possibilities:
- Ackman got Takeda to make an offer because he was seriously contemplating selling Salix. Of course, Takeda was interested and found TPG to buy off the rest. However, the offer was not what Ackman wanted. It might have been quite low. That is why Valeant blurred the time and the price of the offer, so that there could be speculation, instead of an actual number. Think about it, if there was a really good offer, with a substantial premium, why wouldn’t they tell us the price? If they want to restore confidence, that should be the easy decision to make, right?
- Ackman got Takeda to make a fake offer with a high price. They put up a show so that it looks like from the outside that Valeant is doing well enough that other players want to acquire it. But, it is just all for show. There could be a number of reasons Takeda did it. The simple way to put it is that having some who manages many billion dollars owe you a tremendous favor is definitely not a bad thing, especially you have little to lose in the process.
Takeda is a public company. It has fiduciary responsibilities. It does not and will not go around making acquisitions to trashy companies, which it knows it can acquire for a lesser price. Even if the story were 100% true, the bottom line now is: it did not happen. It is still uncertain how the story will unfold. How Takeda valued Valeant two months ago would place no importance in how the company will turn out going forward.