Valeant's M&A-fueled debt is starting to cause big problems for the drugmaker. But activist investor and brand-new board member Bill Ackman has some ideas on how to fix them--and spinning off a stake in key eyecare division Bausch & Lomb is among them.
At a company town hall meeting Monday, Ackman elaborated on an idea he put forth earlier this month, suggesting Valeant could sell off part of B&L to pay down its debt, Bloomberg reports. The company could launch an IPO for a minority stake in the range of 10% to 20%, retaining control of B&L and drumming up cash, he figures. And cash, of course, is desperately needed to pay off debt.
Worries that Valeant ($VRX) may not fulfill its debt agreements--spurred by news that the company wouldn't hit its regulatory filing deadlines, thanks to accounting missteps--have decimated the Canadian drugmaker's share price, sending it down by 51% in a single day last week. That dismal performance prompted the board to start up a search for a new CEO, it said Monday--and it convinced Ackman, head of No. 2 Valeant investor Pershing Square Capital Management, to take matters into his own hands.
It's not the first mention of potential selloffs at the Quebec-based drugmaker. Last week, current skipper J. Michael Pearson told investors on a conference call that the company was already in discussions with potential buyers for some of Valeant's "non-core assets," though he wouldn't say which ones.
"It will be things like Synergetics, where when we bought Synergetics the part that we were interested in was strategic, was the ophthalmology versus the franchise," Pearson said on the call. "What we sold was a contract manufacturing and surgical neurology which is not an area that we compete in, we had no salesforce. And rather than build the salesforce and get into entirely new area, we ended up selling it to a company that was in that area."
Industry watchers may have a hard time accepting B&L as noncore, though. Valeant shelled out $8.7 billion to swallow the eyecare giant back in 2013, and its revenues are important--especially with last week's announcement that other key units, including dermatology and GI, are missing the mark.
Meanwhile, Ackman and Pearson--as well as Valeant Chairman Robert Ingram--also worked to reassure investors that widespread layoffs--a hallmark of Valeant's days as a serial buyer and cost cutter--aren't on the horizon. Pearson said some lower-revenue units within the company will face cuts, sources told Bloomberg--though other units will see expansion.
Special Report: The most influential people in biopharma today - 2016 - J. Michael Pearson - Valeant | The 25 most influential people in biopharma in 2015 - Bill Ackman - Pershing Square Capital Management