Pershing Square Falls 26.4% Year Through March 15 on Valeant

Valeant Analyst: More Bad News to Come

Pershing Square Holdings Ltd., the publicly traded security of Bill Ackman’s activist hedge fund, lost 26.4 percent this year through March 15, hammered by losses at Valeant Pharmaceuticals International Inc., the beleaguered drugmaker whose shares plunged by more than half this week.

Pershing Square also said Wednesday it cut its stake in Mondelez International Inc. to 5.6 percent, because the maker of Oreo cookies was performing better than other investments. Pershing Square, which said it’s still the third-largest shareholder in Mondelez, sold 20 million shares, according to a statement Wednesday, “for portfolio management purposes only.”

Ackman’s fund, Pershing Square Capital Management, has been caught up in the controversy surrounding Valeant, whose shares fell 51 percent Tuesday after the drugmaker cut its 2016 guidance and warned it may breach some of its debt agreements if it can’t file its annual report on time. Pershing Square lost about $764 million on the common shares it owns in the March 15 stock collapse.

Criticism of Valeant’s pricing and drug distribution methods began last year, with fallout ranging from restated earnings to a special board committee investigation of a relationship with a mail-order pharmacy.

Pershing Square, Valeant’s third-biggest shareholder with a stake of about 9 percent, including 6.3 percent of the outstanding common shares, has pledged to take a much larger role at Valeant -- an effort that began last week when its vice chairman, Stephen Fraidin, joined Valeant’s board.

In the year through February, Pershing Square declined 19.3 percent. A representative for Mondelez declined to comment on Pershing Square’s share sale.

2015 Loss

Pershing Square Capital Management posted its worst annual performance in 2015, with a net loss of 20.5 percent for the year.

In the annual letter to shareholders dated Jan. 26, Ackman wrote that investing confidence “has to be carefully balanced by the humility to recognize when you are wrong. While no one here is enthusiastic about delivering our worst performance year in history in 2015, it certainly does a good job reinforcing the humility-side of the equation that is necessary for long-term investment performance.”

A key “very costly mistake” was failing to sell some of its stake in Valeant when the stock hit the mid-$200s per share during the summer, Ackman wrote in the letter.

Restricted Trading

Pershing Square was “largely restricted from trading during this period” due to knowledge of a potential large transaction that Valeant was working on, Ackman wrote.

“In retrospect, in light of Valeant’s leverage and the regulatory and political sensitivity of its underlying business, we should have avoided becoming restricted to preserve trading flexibility” or held a smaller position, he said.

Pershing Square, based in New York, often buys large stakes in companies that it sees as undervalued, and then sometimes pushes for changes by the management or board to boost returns. In October 2014, the public fund began trading in Amsterdam with the same portfolio as the hedge fund.

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