Shares of Valeant, which earlier this year took a turn as Canada’ most valuable stock, fell sharply on October 20 after Citron released a report that called into question the transparency of Valeant’s relationship to a U.S. specialty pharmacy, Philidor RX. The piece, entitled “Valeant: Could this be the Pharmaceutical Enron?”, raised serious questions about the company’s disclosure and accounting policies.
In March, however, a few months before Valeant’s market cap surged passed the Royal Bank of Canada’s, there weren’t many observers who had a problem with it. But one prominent investor was throwing some serious shade on the company.
“Pearson is no scientific wunderkind, nor did Valeant have any breakthrough drug hit the shelves during his tenure,” notes Brown. “Instead, the company’s rapid success could be chalked up to aggressive dealmaking of the sort we haven’t seen since the late 1990s heyday of Tyco and Dennis Kozlowski.”
Munger, presumably, sees parallels between the way Harold Geneen put together ITT and the way Pearson is constructing Valeant.
“Geneen used cheap debt to finance these acquisitions, which later proved to be the company’s downfall,” explains The Motley Fool’s Nelson Smith. “After Geneen’s retirement as CEO in 1977, subsequent CEOs spent much of the next two decades paying off the debt by selling most of Geneen’s acquisitions.”
During Geneen’s tenure, ITT bought hundreds of companies, including Wonder Bread maker Continental Baking, the Sheraton Hotel chain, Avis Rent-a-Car.
Smith says that “on the surface” Valeant looks a lot like ITT did, noting that the company has made 30 different acquisitions since 2010. But Smith also says he is not sure Valeant is “anywhere close to being as bad as ITT was,” because all Valeant’s acquisitions have been made in one industry rather than spread across multiple spaces.
“There’s also a bit of hypocrisy coming from Munger on this issue,” says Smith. “Munger is actively involved in a company that does pretty much the same thing as ITT did back in the 1960s. Sure, Berkshire doesn’t use much debt or engage in hostile takeovers, but Berkshire and ITT have more in common than Munger is willing to admit. Both attempted to dominate the business world using a roll-up acquisition strategy; Buffett and Munger were just a little more patient with their plan.”
Geneen’s dealmaking persona followed him, literally, to the grave. His 1997 obituary in the New York Times took particular note of it.
“He was called a great leader but was also a corporate autocrat who treated foreign governments like subsidiaries. He was a man, some said, who would have bought up the world if given the chance,” said the Times.
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Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.
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