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Valeant: Unsealed Ackman Emails Should Terrify Bulls


Recently released emails between Bill Ackman and Valeant management make for an interesting twist to the Valeant saga.

While publicly pitching the stock, Ackman privately expressed significant concerns about the company being "on the brink of catastrophe" - even before all the bad stuff in 2016.

Multiple explanations could exist - Ackman could have done more research and changed his mind, or he could just have been playing politician.

But a reasonable person would believe he was deeply concerned, and his emails give voice to a plethora of bearish angles on Valeant's current predicament.

Everything expressed in this article is just my opinion as a long-only investor with no position in the stock.

As much as I may dislike Valeant's (NYSE:VRX) business strategy, I honestly thought all the "smoking guns" had emerged by the spectacularly bad March earnings call. Incredibly, though, subpoenaed documents released late last week contain a lot of interesting things - but perhaps none more concerning for prospective VRX bulls than a series of emails between Bill Ackman and Valeant management.

ValueWalk has a compilation of some of the juiciest ones here, but one email from late October 2015 sparked a few takeaways that I think are still relevant half a year later.

Ackman Pitched The Stock, While Believing It Was "On The Brink Of A Catastrophe"

Towards the end of Valeant's initial leg down, when the market was becoming more aware of Philidor, Ackman mounted an impassioned defense of the company (presentation here). Checking media reports from that day (10/30/2015), pretty much nobody believed him, and events since then have certainly validated that the problems ran deeper than he made out at the time.

Perhaps most concerning, though, is that Ackman's privately expressed views three days earlier were very, very different. In an email to Schiller, Pearson, and ValueAct director Mason Morfit, he said things like:

  • "As things stand, the torpedoes are in the water and the sharks are circling. They will kill the company. Valeant has become toxic. Doctors will stop prescribing your products. You will lose complete access to the credit markets. Regulators around the world will start investigating and competing to find problems with every element of your business."
  • "The clock is ticking. We are on the brink of a catastrophe that will dramatically affect the lives of everyone involved in a negative way... you have previously made the mistake of waiting while Rome was burning. There is now a conflagration... we are on the brink of a tragedy."
  • "Your reputation and that of the rest of the board along with the company is at grave risk of being destroyed on a permanent basis."

(All of those are verbatim quotes. If you think I'm cherry-picking, please feel free to see pages 478-479 here for the full email.)

Of course, the tone of this email isn't entirely new information - it had previously been reported by the Wall Street Journal - but I certainly hadn't seen the full text, and I found it astonishing.

As for Ackman's vastly different comments publicly and privately, there are plenty of possibilities here. His views could have changed dramatically in the three ensuing days as he conducted more research and took more time to analyze the situation. Alternatively, he could have just been playing politician - being a dramatic, ticked-off influential shareholder when talking to management, and an optimistic, everything's-gonna-be-alright Pollyanna when talking to the general public and his LPs. And it bears noting that Ackman did subsequently buy...