By Parke Shall
There have been a lot of new developments in the Valeant (NYSE:VRX) case, but only one that matters for this coming week.
As Valeant continues to try and rebuild itself after its fall from grace over the last 18 months, it has identified a couple of key things that it needs to do in order to try and salvage itself and show the market that it can be a stable company with stable cash flows that can service its debt.
Valeant needs to show the market that it's investable again, and there's only one real way to do that: file its 10-K with audited financials, without any further restatements or aberrations.
Last week, there were rumors that Perrigo's (NASDAQ:PRGO) Joseph Papa was being considered for the CEO spot. This news was mostly positive as Mr. Papa has a good track record and is respected within the industry. The key for Valeant is to find somebody with experience that the market will trust. This morning, Perrigo named a new CEO, further fueling rumors that Mr. Papa would be named Valeant's new CEO. Reuters put out an exclusive just moments ago stating that PRGO's new CEO appointment is so that Papa can leave for Valeant. All that's left are the formalities for Valeant. We are actually expecting that news to cross the wires at any moment this morning.
But that isn't really the one thing that matters.
Also in the news last week was that Valeant was set to default on a number of its other notes should the company not be able to file its 10-K before the end of April. This comes in addition to other default notices the company received earlier this month, which alarmed investors and drove the stock down quickly before the investing public realized that all the company needs to do is file its 10-K before April 29th and it will not default.
This is why filing the 10-K is clearly the most important thing and the only thing that matters for Valeant this week.
The company has repeated over and over that it is committed to getting the 10-K filed by its extended due date of April 29. Should the company file its 10-K, it shows the market that it has a clean bill of health, and most importantly, it prevents the company from defaulting on its debt.
If the company does not file its 10-K this week or if it files another extension, not only is it going to get the company in trouble with its creditors, but it could be signs that there is more trouble brewing under the surface that investors have not heard about yet.
As a reminder, right now, the company line is that no additional accounting irregularities have been found and that the small restatements totaling just pennies that have already been made are the extent of the company's accounting irregularities. The company has even changed its language around the 10-K to "on schedule" from it "intends" to file on time. Good news for VRX shareholders, but meaningless until the audited financials are actually filed.
If the company is able to file its 10-K this week, we expect shares over $40. It would be another piece of momentum in the right direction for the company and may help generate some much-needed positive headlines. Since Mr. Ackman has joined the Board of Directors, getting Mr. Papa on board and filing the 10-K would be two great steps in the right direction for the "new" Valeant.
While it will likely be easy to celebrate the onboarding of a new CEO this week, investors must remember that there is only one thing that matters this week. The company needs to file its 10-K as promised and needs to show the market that it is at the beginning stages of putting this entire mess behind the company. We will be eagerly watching.
Disclosure: I am/we are long VRX.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.