On at least two occasions I recommended that the company raise equity. I recommended an equity raise as early as November 2016:
Management’s strategy appears to be [i] sell assets at multiples much higher than its 7x debt/EBITDA metrics or [ii] risk having its cash flows fall short of debt service and potential legal settlements. Market chatter suggests Valeant has not established reserves to cover legal liabilities. Outside of the accounting implications, it could be prudent for the company to sell stock to cover potential legal liabilities… “just in case.” In my opinion, two potential payouts are for [i] fraudulent business practices at Philidor and [ii] its share of profits from Pershing Square’s (OTCPK:PSHZF) alleged insider trading in Allergan (NYSE:AGN) stock …
Via an equity raise, VRX could use its stock as currency to provide a cushion against potential legal payouts or shortfalls in cash flow. Assuming a 10% discount to its current share price, the company would need to sell 58 million new shares to raise the estimated $940 million. Based on 348 million shares outstanding, the secondary share offering would be dilutive by about 14%.
It’s too late now. According to Shocking The Street, an investment service the Shock Exchange runs in conjunction with Seeking Alpha, Valeant is insolvent. Have a nice holiday weekend.
