5 Reasons Valeant Is A Buy After This Morning's News

| About: Valeant Pharmaceuticals (VRX)


Valeant makes pre-market announcement this morning.

CEO succession, Ackman joining board, and coming filing of 10-K with closure of internal review are all announced.

This is Valeant's last chance, and we think with a new CEO and new Board, they can save themselves.

By Parke Shall

In a quick review of this morning's news, many of the contingent liabilities on the sidelines for Valeant (NYSE:VRX) seem to be coming to a resolution. We believe this morning's news release is fantastic news for those who are long at this point and here's why.

You can read the full PR here. The key points are as follows,

  • Initiates Search for New CEO; J. Michael Pearson to Remain as CEO Until Successor is Named
  • William A. Ackman Joins Board of Directors; Katharine B. Stevenson Steps Down from Board


  • Ad Hoc Committee Review of Accounting and Financial Reporting Matters Nearing Completion
  • Valeant Plans Restatement Based on Previously Announced Misstatements
  • Valeant Explains Circumstances that Resulted in Delay in the Filing of 10-K

First, with William Ackman himself joining the board, it lends a much needed air of credibility and shows that he is dedicated to his investment. Further, due to his large stake in the company, he is going to be committed to getting the company sold as a whole or in part, we believe.

Second, the succession at the CEO position is also going to help take some of the negative credibility out of the company and hopefully be the first step toward a new company that, as the press release states, is not as focused on hitting performance targets and more focused on things like operating ethically and not going bankrupt.

We actually think that changing the company's name at this point could also be a good decision.

Third, it appears the company is only going to be issuing the restatements that have already been disclosed. This means that it doesn't appear any other major restatements were found and it was as though the internal review has not turned up either.

Fourth, it appears that the hold up of the 10-K could be over very soon. It appears to be in its final stages.

Fifth, Pearson's comment that he is committed to filing before the end of April takes a lot of the default worries off the table. Though he isn't the easiest guy to trust, with Ackman on the board we have more confidence he wouldn't be making this statement unless they knew they were close. Although the company could still get a waiver or an extension, it seems as though they believe they can get the filing taken care of before the default.

Many of the other statements they made show they seem to have some visibility as to a resolution of all of the company's internal problems.

For all intents and purposes, for a company that is valued at 2.5X earnings, we think this morning's release is a good boost of confidence for those buying at these levels. It appears that they have "kitchen sinked" the bad news, including improper conduct from the CFO.

One interesting note is that it appears the company and asked Howard Schiller to resign, and he is not doing so. We expect the board will reach a settlement agreement with him over the next week and it will be taken care of.

This is a new step in the right direction for this company that desperately needed it, and at first glance we are very confident from this morning's results.

We plan to provide additional analysis later today.

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.

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