Paulson joins Valeant board

ACKMAN’S EXIT

CYNTHIA KOONS AND MILES WEISS NEW YORK • Billionaire hedge-fund manager John Paulson bought into Valeant Pharmaceuticals International Inc. stock on its way to the top. Now, he’s trying to help push it off the bottom.

Paulson will join the board after the noisy exit of another high-profile investor: onetime backer Bill Ackman. The appointment of Paulson, whose firm became Valeant’s biggest shareholder after Ackman bailed out in March, could help comfort shareholders that he’s sticking with the drugmaker while it tries to rebuild itself after highprofile scandals. The stock jumped 6.4 per cent to close at US$13.47 in New York on Monday — still a fraction of where it traded when Paulson & Co. reported its first purchase three years ago.

Getting a seat on the board gives Paulson a firmer hand on one of his most troublesome holdings, and some influence over the turnaround undertaken by chief executive officer Joseph Papa, who has started selling a few assets to chip away at the debt. Although the shares have bounced back from recent lows in the past months, they are still down more than 80 per cent from their 2015 peak, after Valeant became embroiled in accounting probes and drug-pricing outrage. Paulson’s first investment dates back to the first quarter of 2014, according filings, at a time when the drugmaker was a Wall Street darling and traded at an average of more than US$130.

Paulson shot to fame betting on the collapse of the U.S. housing market in 2007. A decade later, the hedgefund manager is struggling to persuade investors to stay with him after a string of missteps on assets including gold and drug stocks. The firm’s primary merger arbitrage strategy fell 25 per cent last year. But unlike Ackman, Paulson has been sticking with his bets on pharmaceutical companies so far: In a May letter to investors of one of its funds, Paulson said his firm still believes in Valeant’s “core value.”

“The stock has been all but abandoned at this point,” said David Tawil, the founder of Maglan Capital LP, a New York-based hedge fund that specializes in corporate strategies. There is a “fair amount of financial engineering” that could be done at Valeant, a company that was built through acquisitions and lots of debt, he said.

“If they could retrace a considerable amount of that loss, it would be a big winner for Paulson,” Tawil said.

It will be a challenge. Paulson’s latest significant Valeant transaction came during the second quarter of 2016, when the shares were still trading in the high 20s. He raised Paulson & Co.’s stake to about 19 million shares at the time, and the holding has remained at that level since, give or take slight fluctuations in the past year.

Paulson became director on June 14, bringing the number of members to 11, Valeant, which has its legal headquarters in Laval, Que., and is run from New Jersey, said Monday in a statement. Armel Leslie, an outside spokesman for Paulson who works for Peppercom, declined to comment.

Even after Ackman’s departure — the hedge fund manager called his investment a “huge mistake” — Paulson won’t be the only big investor on the board. Robert Hale, a partner with hedge fund ValueAct, has been a director since August 2015. ValueAct boosted its stake to more than five per cent, and remains among the biggest holders after first investing in mid-2006 in what was then a small experimental-drug developer. David Maris, an analyst at Wells Fargo and a longtime critic of Valeant, viewed the new appointment with skepticism.

“It could be a sign that a major holder is frustrated with the pace and direction of change,” Maris, who rates the shares underperform, said in a note to investors. “We do not know what new domain experience that Paulson brings to Valeant’s board that was not already present, especially with ValueAct already on the board.”