Bill Ackman Net Worth Hit on Valeant Drop
It might be fair to suggest that American investor Bill Ackman’s net worth had a rather bad day last week. He lost a billion dollars in the stock market, as the Canadian pharmaceutical company Valeant Pharmaceuticals Intl Inc (NYSE:VRX), of which he is a major shareholder, crashed.
Mr. Ackman, one of the most emblematic figures of Wall Street, held nine percent of the Canadian group through his Pershing Square hedge fund, according to U.S. Securities and Exchange Commission (SEC) filings dated March 9, 2016. (Source: “Bill Ackman Says Valeant Will Be Fine,” Fortune, March 1, 2016.) At the time of the crash, Ackman’s fund held nearly 31 million shares of Valeant stock, which lost nearly half of its value in just 24 hours. One moment it was worth $71.59 per share; a few hours later, it was worth no more than $44.00 per share.
As for Ackman himself, his personal fortune’s fall was less dramatic. He went from $2.5 billion a year ago to $2.0 billion. Assets under management at Ackman’s Pershing Square Capital Management hedge fund firm plunged from a peak of $20.2 billion to $13.4 billion as of the end of last February. (Source: “The World’s Hedge Fund Billionaires (Some Are Less Rich Than They Used To Be),” Forbes, March 1, 2016.)
Standard & Poor’s has taken notice and has placed “BBB” issuer credit and senior unsecured issue ratings on Pershing Square Holdings, which suffered a major blow because of Valeant’s drop. S&P analyst Trevor Martin said Pershing Square’s net asset value has dropped from $5.3 billion at the end of October 2015 to $3.8 billion, primarily because of Valeant’s steep descent last week. (Source: “S&P Puts Pershing Square On Creditwatch Negative,” Benzinga, March17, 2016.)
As for Ackman himself, on March 15, his Valeant shares were worth $2.12 billion. At the close of market that same day, they were worth just a tad over $1.12 billion.
Valeant was one of the most popular stocks a year ago. However, last summer, Valeant stock suffered, as the company came under investigation on suspicion of accounting manipulation.
So far, Valeant has reported a loss of $336 million in the last quarter of 2015, which was below analysts’ expectations. Valeant has revised its outlook for 2016 downward, which should cause Ackman more worries. Or will it? Ackman appears rather confident in Valeant’s ability and its managers to reverse the bearish trend. Rather than looking for insomnia ailments, Ackman can find solace in the fact that VRX stock bounced back almost 10% on March 21.
Ackman has more reason to be confident as one of his close associates, Steve Fraidin, has joined the board of the Canadian group. Unlike other activist hedge funds—the prototype for which might be Starboard Value—Bill Ackman has not threatened Valeant’s managers. (Source: “Ackman Gets More Involved at Valeant After $764 Million Loss,” Bloomberg, March 15, 2016.)
Indeed, Ackman is the “Mr. Nice Guy” among activist investors, having always backed Valeant’s CEO Michael Pearson. Together, they attempted and failed to take over Allergan, the maker of “Botox,” the anti-wrinkle treatment.
Valeant is facing some “price gouging” accusations and while the stock may recover from last week’s lows, the government probes will put a limit on stock price gains for the near future. Ackman infamously went short on Herbalife Ltd. (NYSE:HLF), a move whose explanation might be revealed in the same mystery that explains the bullish sentiment on Valeant.
Ackman blamed Herbalife for running a “pyramid scheme,” not unlike the one that has caused trouble for Valeant. Herbalife gained some 66% in 2015, while Valeant lost about 31%. (Source: “Bill Ackman’s Pershing Square hedge fund ended 2015 down 20.5%,” MarketWatch, January 5, 2016.)
Meanwhile, Ackman is not simply leaving Valeant and his former $2.0-billion-plus fortune (now halved) to chance. He still sees a way to recover most if not all of the billion he lost last week. Valeant’s CEO—and presumably still a friend of Ackman’s—Michael Pearson will leave the company. Meanwhile, Ackman has joined the board of directors. Pearson will remain in office until a replacement is appointed. Ackman will have a major influence over the replacement.