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Too much of a good thing

5 November 2015 By Robert Cyran

Bill Ackman is pushing the limits of activism at Valeant Pharmaceuticals. The $55 billion of quickly lost market value, including some $4 billion more on Thursday, suggests his involvement isn’t helping.

Each successive victory by aggressive investors like Ackman, Carl Icahn and Dan Loeb over the last couple of years has emboldened them even more. Demands have extended beyond just breakups, buybacks and new board directors to handpicked bosses and detailed management plans. One fund, Starboard Value, went so far as to criticize the bread-stick policy at Olive Garden during its campaign against the chain’s parent company Darden Restaurants.

In some ways, Ackman’s presence at Valeant is even more insidious. After coming under fire in mid-October for its control of a specialty pharmacy accused of seeking improper insurance reimbursement and altering prescriptions, Valeant organized a phone call for investors with the top brass. It failed to dispel fears, the allegations expanded and days later Valeant severed ties with the firm. It wasn’t enough for Ackman, though, who has lost more than $2 billion on his Valeant investment.

Mike Pearson, Valeant’s chief executive, invited Ackman – whose Pershing Square fund owns just 6 percent of Valeant and has no board seat – to call into a meeting of directors, according to a Thursday report in the Wall Street Journal. When Ackman couldn’t persuade the company to hold another conference call with investors, he contacted Valeant’s lead independent director and questioned Pearson’s suitability as CEO, the newspaper reported. Ackman then hosted a four-hour call of his own. Some 10,000 people dialed in, more than twice as many as listened to Valeant’s.

The greater blurring of lines between investor and management is dangerous. Ackman’s incentives may be different than Valeant’s sometimes. For example, Ackman last year laid out a list of potential takeover targets for the company. Valeant later tried to acquire one in which Pershing Square was an investor and later bought another firm where Ackman owned a stake. Ackman’s concerns about Pearson also sparked greater confusion and worry, prompting both the Valeant board – and then Ackman, too, just minutes later – to issue statements of support on Thursday afternoon.

At this point, it’s not entirely clear whose backing – or defense of the company’s practices – matters more. That’s a problem unto itself for both Valeant and Ackman – and maybe for increasingly bellicose investors everywhere.


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