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Valeant Pharm: A Heavily Indebted Company

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Valeant Pharmaceuticals has taken some hits of late. At the end of March 14, a share of VRX at the NYSE would bring you $69.04. At the end of the following day, it was worth less than half of that, just $33.51. It has lost further ground since. What happened? Management had announced disappointing earnings figures, and  cautioned that its debt holders could categorize it as in default if it missed an April 30th filing deadline.

A week later, the bond rater Moody's downgraded Valeant, on the grounds that its cash stockpile was inadequate to its overall indebtedness.

Meanwhile, as the departure of J. Michael Pearson, the long-time CEO, approached, shareholders naturally got nervous. They were nervous, that is, because always creates a case of the nerves in someone, often in many people. They weren't nervous as a recognition of Pearson's great leadership. Indeed, he had run up a heck of a lot of debt on acquisitions, some of which at least were of dubious value to the company.

Joseph Papa, formerly of Perrigo, formally replaced Pearson on Monday, May 2.

On May 16, Bloomberg reported that one renowned hedge fund, Jana Partners, well regarded partly as a consequence of its campaigns to change policies at ConAgra Foods and Computer Sciences Corp., had sold its (considerable) holdings in Valeant in the first quarter.

Some commenters were by this time predicting that Valeant's stock was headed to zero. It hasn't gotten any lower than $23.55 though.

Just yesterday, Reuters reported on several letters the SEC has sent Valeant expressing concern about its non-GAAP accounting. For those not in these weeds, GAAP stands for "generally accepted accounting practices." Non-GAAP practices, then, are the not-so-accepted ones.  On the day this became public knowledge, oddly, the stock price went up. At the end of trading Wednesday it was at $27.13.

How much trouble is it in? Or, looking at the glass half full: Could it get back to the $70 neighborhood?


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