Investor Ackman defends Valeant in 4-hour conference call

In his talk Friday, Bill Ackman, who runs Pershing Square Capital Management, answered nearly 200 questions sent by email from investors and reporters.
(Pawel Dwulit / Associated Press)

Bill Ackman found himself in a familiar position on Friday — up against it.

The brash billionaire activist investor, best known in California for his scorched-earth campaigns against Herbalife Ltd. and the management of drugmaker Allergan Inc., staged a high-stakes conference call to defend his latest cause: his huge investment in Valeant Pharmaceuticals International Inc.

In a matter-of-fact tone, Ackman spent more than four hours mostly defending the high-flying Canadian pharmaceuticals giant against allegations ranging from price gouging to presiding over an interrelated web of companies that resembles, in the word’s of a short-seller, “Enron part deux.”

“Even with very reputable companies, stuff happens,” said Ackman, who runs Pershing Square Capital Management. “The best thing about a company that goes through a scandal means they’re going to be that much more careful about this kind of thing going forward.”


Herbalife and Allergan can attest to Ackman’s brash style.

Amid much fanfare nearly three years ago, Ackman alleged publicly that Herbalife, a Los Angeles nutritional products company, was operated as a pyramid scheme and that its shares would fall to zero.

He shorted the stock in a $1-billion bet that shares would fall. They have risen instead and closed Thursday at $56.04, still above his since reduced short position.

Early last year, Ackman teamed up with Valeant in a bid to buy Allergan, the Irvine maker of Botox and other skin care products.

The bitter fight — including short-lived lawsuits — eventually sent Allergan into the arms of Irish firm Activis. Pershing Square walked away with a reported gain of more than $2 billion.

On Friday, Herbalife offered mock sympathy to Ackman over Valeant’s woes.

“Unfortunately we have a great amount of experience in dealing with activist short-sellers,” said Alan Hoffman, an Herbalife executive vice president. “We’re happy to give Ackman some advice if he needs it.”

In his long talk, Ackman answered nearly 200 questions sent by email from investors and reporters. But even as he talked, shares continued to fall. The stock has lost 63% of its value in the past three months, 48% of it this month. It lost $17.73, or 17.7% Friday, to $93.77 in U.S. trading.

Pershing Square’s roughly 6% stake in Valeant represents one the largest positions in the $16-billion New York hedge fund operation.

Ackman said Valeant erred mostly in being slow to respond to a barrage of bad publicity about its close and previously undisclosed ties to a mail-order pharmacy, Philidor Rx Services, at the center of the maelstrom. He backed Valeant’s embattled leaders, conceding they should have disclosed ties to Philidor earlier. Valeant severed those ties Friday.

Longtime Ackman-watchers said the conference call — so mobbed by investors and financial reporters that the call-in system suffered technical snafus — was emblematic of a high-risk, high-wire career made up of big bets punctuated by a series of dramatic public confrontations.

Ackman’s investing style, while often riveting, is also source of frustration for his investors, said Erik Gordon, a professor at the University of Michigan’s Ross School of Business.

“There are two Bill Ackmans,” he said. “The public sees him as a guy who’s obstinate to the point of ridiculous. Investors see him as a guy who can make them a lot of money. Their aggravation comes when they think about whether he could make them a lot more money if he wasn’t so obstinate.”

The Valeant fracas is part of a wider debate over Wall Street’s so-called activist investors who use large stakes in public companies to influence their direction, often through noisy publicity campaigns.

Activists, the heirs to corporate raiders of the 1980s, say they provide market discipline to complacent public companies resistant to change.

Opponents say they force companies to sacrifice long-term value for activists’ short-term gain.

The stakes are high, even by Ackman’s standards.

Federal prosecutors in New York and Massachusetts have issued subpoenas to Valeant for documents related to the company’s pricing decisions. And Sen. Claire McCaskill (D-Mo.) , the ranking member of the Senate Aging Committee, has sent letters demanding information about the Laval, Quebec, company’s business practices.

“Valeant’s questionable business practices extend well beyond price gouging,” McCaskill said this week.

The latest flurry of bad news was sparked by an Oct. 19 investigative story into Valeant’s related-party deals by the Southern Investigative Reporting Foundation. The sell-off was propelled two days later by a report from a short-seller, Citron Research, comparing fast-growing Valeant, which has made a series of rapid acquisitions, to scandalous energy trading firm Enron Corp.

On Friday, Citron said on its Twitter account that it would update its report Monday. “Dirtier than anyone has reported!!” it said. On Friday, Citron’s executive editor, Andrew Left, wouldn’t disclose what he planned to publish, saying “it’s more of a forward-looking thing.”

Steven Kaplan, a finance professor at the University of Chicago, said it’s far from clear that Ackman’s Valeant gambit will work out for his investors.

“Ackman and Pershing are very smart” he said “That said, they have winners and losers like everyone else. Valeant has been a winner for a while. But, nothing lasts forever in the stock market.”

The Valeant squabble has hurt Pershing Square, which had bought more than $2 billion worth of Valeant shares and was Valeant’s third-largest shareholder as of its latest Securities and Exchange Commission filing Sept. 30.

In response to the latest flap, Pershing bought 2 million more Valeant shares, for about $225 million, on Oct. 21.

Returns of Pershing Square’s closed-end fund, seen as a proxy for Ackman’s overall hedge fund operation, were off 15.9% for the year through Oct. 27. It had been up as much as 11% in mid-August.



Oct. 31, 12:06 p.m.: An earlier version of this article referred to one of Bill Ackman’s Pershing Square Capital Management investments as a closed-end mutual fund. It is a closed-end fund, but not a mutual fund.


The 49-year-old New York area native started his first investment firm with a partner shortly after graduating from Harvard Business School in 1992, then started Pershing Square in 2004. He became known for placing a few out-sized bets based on meticulous financial research, often backed by political-style campaigns to sway other investors to his side.

One of his biggest successes involved a years-long campaign in the mid-2000s against most of the rest of Wall Street, warning that the $2.5 trillion bond-insurance industry was a catastrophe waiting to happen.

That warning was borne out when mortgage bonds began to collapse in 2007. A vocal Ackman campaign in 2005 to pressure Wendy’s International to sell its Tim Horton’s doughnut chain was considered an investment success. Another in 2010 to force major changes at J.C. Penney was not.

But while few doubt his investing acumen — Pershing Square is perennially ranked among the top hedge fund performers — his brash style has generated hostility from fellow investors, as well as corporate targets.

His attack on Herbalife sparked heated arguments among hedge fund managers, such as Carl Icahn, who took the opposite position and began buying shares as he clashed with Ackman in several televised interviews.


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