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Valeant: Liquidation Value Is 50 USD Per Share

|Includes: Bausch Health Companies Inc. (BHC)

Summary

#VRX: First divestitures in 2017 imply potential liquidation value of approximately 50 USD per share if all assets were sold (net of debt).

Skin care and Dendreon sale give good picture on average asset quality of Valeant's portfolio.

Implies total upside potential of 300 % in relation to current valuation level until 2020.

Valeant Pharmaceuticals (#VRX) made considerable progress in its aim to be able to lower its debt burden by 5 billion USD until mid 2018.

1/ First divestitures in 2017 show good average asset quality

The company is about to sell some skin care products to L'Oreal (1.3 billion USD) and its Dendreon unit for about 820 million USD to Chinese Sanpower conglomerate, i.e. resulting in total cash-in of 2.1billion USD. Total yearly sales of both businesses were about 420 million. The businesses are a good average indication regarding the quality of the total Valeant asset portfolio. One (skin care) was sold for high multiples and one for low multiples (Dendreon). Furthermore, both were sold at considerable gains in relation to the prices paid by Valeant's own acquisition of these business lines.

2/ Implicit liquidation potential of 47.5 billion USD for the whole company

Valeant's total yearly sales are about 9.5 billion, implying that it could sell all its assets for about 47.5 billion USD (9.5(i.e. total sales)/0.42 (i.e. sales of sold businesses) times 2.1 (i.e. money received for two business lines sold)).

/3 Net asset value (net of all debt) is 16.5. billion USD

Assuming Valeant would pay back all its debt of 31 billion USD, there would still be 16.5 billion USD left in net cash (47.5 minus 31 billion). This implies a total liquidation value of 16.5 billion or about 50 USD per share. The return potential is about 300% in relation to the current share price of about 15 USD (with a total market capitalisation of about 5 billion USD currently at this per share price).

/4 Valuation of 50 USD per share confirmed

This new valuation approach confirms my first intrinsic value calculation of 50 USD per share and gives it additionally downside protection by calculating Valeant's worst case liquidation value.

Disclosure: I am/we are long VRX.