Valeant’s group of owners finds a way to work together
For a company that has made its shareholders a lot of money — a total return of 255 per cent over the past three years — Valeant Pharmaceuticals International Inc.’s share register has a different look.
According to Bloomberg data, Valeant’s top 20 shareholders include two prominent hedge funds (Lone Pine Capital and Viking Global Investors) as well as three investors best known for their activism.
But in a move that some regard as surprising, Valeant — locked in a battle with Endo International Plc to acquire Salix Pharmaceuticals Ltd. — is said to have turned to the activists for additional capital to boost its offer for Salix.
The New York Times reported Friday that Pershing Square (which has a 4.9 per cent stake) and ValueAct Capital (which owns 5.81 per cent) agreed to back and fund a revised offer by Valeant for Salix. A richer offer is necessary because Valeant’s original $158 US per share takeover agreement was bested on Wednesday by Endo, which proposed $175 a share, payable in cash and stock.
Pershing Square is the New Yorkbased hedge fund founded and run by Bill Ackman, arguably best recognized for his activist campaigns at J.C. Penney Co., Wendy’s International Inc. and Canadian Pacific Railway Ltd. The fund recently disclosed a 4.9 per cent stake in Valeant, an ownership level that represents one-sixth of its total portfolio.
San Francisco-based ValueAct Holdings, which scored a victory at Microsoft Corp. in 2013 after it won a seat on the software maker’s board one week after then chief executive officer Steve Ballmer announced his retirement, is another activist. A Valeant shareholder since 2006, ValueAct’s approach is to work “constructively with management and the company’s board to implement value-creating strategies.”
Jana Partners, a firm that defines itself as a “value-oriented, eventdriven manager,” is the third activist. New York-based Jana, which mounted a challenge against Agrium Inc. in 2012, has a 1.29 per cent stake in Valeant.
In all, the activists own 12 per cent of Valeant, a combined stake that’s below the interest held by Valeant’s two largest non-activist investors: Ruane Cunniff & Goldfarb (10.29 per cent) and Blackrock (10.01 per cent.)
But it was the activists that Valeant reportedly turned to when it needed extra partners to raise its offer for Salix, a target it agreed to buy on Feb. 22.
And that’s something of a surprise. After Pershing Square and Valeant were outbid for Allergan Inc. last November, Valeant chief Michael Pearson said that while the company still enjoys a “good relationship” with Mr. Ackman, the two would not likely do another deal together in the future.
“We have nothing in the works,” Pearson told the Financial Post in January. “You can never say never, but if I was ever going to say never, it would probably be on something like this.”
But in snaring capital from the activists, Valeant would put to rest the argument that a company acts differently when its shareholders represent a mixed bag of interests, with presumably different time horizons.
Wes Hall, CEO of Kingsdale Shareholder Services, the country’s largest proxy solicitation firm, said, “in my view, when you have that many activists you better run a really great company.”
But the presence of the activists doesn’t necessarily put the CEO under the gun more than otherwise. “They have invested in Valeant because they like the business and they certainly like [Pearson’s] strategy. And as long as he has executed on that strategy and it’s showing results, he has nothing to worry about. They are there to make money.”
Ackman, ValueAct and Jana did not return requests for comment.