Why Are Investors Abandoning VRX Stock?

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Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is down 4.5% on Wednesday as billionaire William Ackman’s Pershing Square Capital Management LP cut its stake in the company and several executives departed. Pershing is the largest investor in VRX stock, although the recent move has put its stake in the company down to 7.8% from nine percent.

The move comes at a tumultuous time in VRX stock’s life. The company can’t seem to catch a break, and while Ackman remains positive on the drug producer, he did ultimately apologize to investors for mistakes regarding Valeant. VRX stock has dropped 86% since the beginning of the year, and Pershing’s investment has lost $2.0 billion as a result.

Hardly good news to report back to investors. Still, Ackman remains on the Valeant board. The sale of these stocks is also reportedly being done to generate a loss for tax purposes. (Source: “Pershing Square Sells Some Valeant Shares, Seeking Tax Loss,” The Wall Street Journal, December 13, 2016.)

After the Pershing-Ackman trouble, you have the departure of several key figures in the company: Anne Whitaker, the head of Branded Rx; Dr. Ari Kellen, the head of Bausch & Lomb Incorporated; and CFO Rob Rosiello. (Source: “Man, has it been a hectic end-of-year for Bill Ackman and Valeant,Business Insider, December 14, 2016.)

But dry your eyes and save your tears, for they did not leave empty-handed, according to Wells Fargo & Co (NYSE:WFC) analyst David Maris:

We are surprised that Valeant’s CEO provided Rosiello and Kellen with consulting agreements on an ongoing basis, as despite these outgoing executives being very highly compensated while at Valeant, the company has lost nearly $80 billion in market value.

Shortly after Valeant’s new CEO came onboard, these same executives also received special retention awards, enhanced severance benefits equal to 2x each’s annual base salary and target bonus, and continued employment despite Valeant’s missed earnings and poor business performance. Additionally, the new CEO and board awarded former CEO Michael Pearson a $9 million severance and a consulting contract. We are unaware on what Pearson is being paid to consult.

All in all, not a great day to be holding VRX stock. But, conversely, not a bad time to be a departing Valeant executive.