When Bill Ackman sold his stake in toxic drugmaker Valeant, another hedge fund manager tried to shore up confidence: Jeff Ubben, of ValueAct Capital, who helped create the Frankenstein monster that Valeant became. The day after Ackman sold, ValueAct bought 3.4 million shares. It was a tiny purchase, but it pushed the fund above the 5% range that required reporting the sale—and alerted the world Ubben was still on board. ValueAct’s average price for its stake is now $19.68, and the stock is trading around $11.
ValueAct’s role in creating Valeant, which skyrocketed to $260 before falling slightly below $11 on Ackman’s sale, has been obscured by the more famous manager’s controversial personality and newer involvement. A year ago, Ackman joined the board, kicked out the former CEO and tried to fix the company. Ackman now admits it was a colossal mistake—certainly a costly one for him, as it created a $4 billion loss for Pershing Square.
Last July, I wrote about ValueAct’s role in Valeant for Institutional Investor’s Alpha. http://www.institutionalinvestorsalpha.com/Article/3572465/ValueActs-Valeant-Problem.html
Since most of this is behind the pay well, I’ve excerpted a few graphs:
“ValueAct Capital Management’s Jeffrey Ubben has carefully cultivated a reputation as a good-guy activist who works with management to get results — a reputation that was built in part on his tremendous success with Canadian drugmaker Valeant Pharmaceuticals International. Valeant soared for years, helping fuel such lofty returns for the San Francisco hedge fund that by 2015 it was able to move into an architecturally stunning 30,000-square-foot office that, with its Piet Mondrian-style design and signature Eucalyptus wood, has been called a “cathedral of commerce” in the prestigious Presidio district.
Then Valeant crashed, tarnishing ValueAct’s once-golden reputation. …This year, the firm’s main hedge fund has fallen more than 7 percent through June, putting ValueAct’s firm wide assets at around $16.4 billion. Over the past 12 months though June, the fund fell 18 percent.
ValueAct hired former Valeant CEO Michael Pearson, endorsed his M&A strategy of buying drugs and downplaying research and development — a strategy that other hedge funds also found attractive. ValueAct was also on the board while Valeant was raising drug prices and engaged in questionable activities with now shuttered specialty pharmacy Philidor occurred. Philidor’s role was to make sure the drugs sold at exorbitant prices, whatever it took.
But perhaps most important, ValueAct partner Mason Morfit, who headed Valeant’s compensation committee, set up the stock-based pay scheme for Pearson that the company’s board, under prodding from investor Ackman when he finally joined this year, admitted was too aggressive and may have pushed the company into unsavory practices. Led by Ackman, the board fired Pearson in March.”
I wrote about Ackman’s role in Valeant last March for Fortune: