No Upside for VRX Stock
Take a glance at the daily headlines and you’ll realize that embattled Valeant Pharmaceuticals Intl Inc (NYSE:VRX, TSE:VRX)—the poster child for short sellers and misgivings—continues to be one of the most talked about stocks. The decision to pick up shares of VRX stock is akin to kissing your sister or brother—something is just not right.
Valeant has a tough road ahead despite making massive changes at the helm and in the boardroom. There will need to be lots of hand holding to get things right.
CEO Michael Pearson is out of the picture. In his place is Joseph C. Papa—the ex-CEO of generic drug company Perrigo Company PLC (NYSE:PRGO). Joining Papa in the boardroom will be a host of new directors including hedge fund manager Bill Ackman of Pershing Square Capital Management, the biggest shareholder in VRX stock and with the most at risk.
Here are the problems…
Ackman has testified on Capitol Hill but after watching the proceedings, there is still lots of work ahead, especially with drug pricing.
Then there are the financial statements and their complexities, which could produce more concerns as regulators dive deeper into Valeant. There have been questions raised regarding the calculation of non-cash items and cash flow, which is raising more red flags.
Chart courtesy of www.StockCharts.com
Why New Leadership May Be Questionable
Then there’s the new captain at the helm.
Papa has garnered a shrewd reputation as a hardcore leader but he and Perrigo are also facing a class action lawsuit that, if true, could cause more tensions at Valeant.
The lawsuit alleges that Papa and Perrigo’s executives fabricated false and/or misleading information relating to the company’s financial health and future prospects.
The allegations relate to Perrigo’s rejection of a massive $26.0-billion takeover bid from rival Mylan NV (NASDAQ:MYL). The lawsuit suggested PRGO provided overly ambitious numbers and estimates to convince shareholders to reject the bid, claiming it undervalued the value of PRGO stock.
Papa was at the helm. After the bid was rejected, Perrigo offered up a weak fourth quarter. PRGO stock has since plummeted to the current $97.00 share price.
Given the situation at PRGO, you could understand why there may be a credibility issue with Papa at VRX.
Papa has a sweet arrangement with VRX. He would earn some $500 million if he drives VRX stock back to its high point within a certain timeframe.
If Papa can deliver the goods, he would be deserving of the bonus, as it would mean VRX stock would gain some $80.0 billion in value.
To get the ball rolling, Papa will need to shed some assets in order to reduce the massive $31.0 billion in debt or risk credit defaults along the way.
The shorts have eased off after the price decline, so we could be seeing a bottom in Valeant stock.
I wouldn’t be touching VRX stock, as it remains a non-investment-grade name. It’s purely for gamblers who believe there are a few ticks to be made.