Millions will be the acquirer here and take on assets and employ the synergy believes you can gain.
There is a good reason everyone is so fascinated by this.
What the market is still struggling to understand is why you could not do this on your own.
Why could valley and not go out and buy contracts?
Class a couple of reasons.
One, it is better at trading than we would ever be able to do.
Second, we did not have $4 billion to put at risk mr.
Ackerman and his team toward our cause.
They now own 10% and they could be an independent voice.
Finally, in terms of the probability of this deal being done, having a third party that is related our model and believes the combination is in the short or long-term is a huge asset.
Qwest can i follow-up up on those points quickly?
You are right valley and does not have the share purchasing it or tease but goldman sachs does, morgan stanley does.
We would have to pay for it.
The second point, the third point was the fact you had bill forced to an acquisition.
Let's get to that.
I have met and know a number.
If you put a deal on the table, they would help drive that forward.
Qwest we hope they will.
Qwest they are right now.
Do you remember what the second point was?
The second point was we had someone independent come in and validate our model and they're not just hoping the transaction goes through but he is committed to being a long-term investor.
He sees short-term opportunities and long-term opportunities.
I think we would add less value in some ways.
-- a meaningful part of the consideration, what you're doing, you're becoming a shareholder in the combined enterprise.
Ultimately how this business does in the next five or 10 years.
Before we were ready to participate, we had to be comfortable with the business.
They have got an incredible track record.
It is still a misunderstood company.
We thought we could help them understand -- i would much rather self for stock.
Qwest how many acquisitions have you made?
Well over 100. qwest how big is your acquisition?
One would think that would be a huge amount of manpower to get through that.
Qwest we actually do not have a specific integration team.
Our managers know how to integrate.
The fact we are decentralized makes it easier.
We have a team that will put them into their decentralized operation and do that very quickly.
They're very experienced at running companies and integrating.
It is core competency.
Is there an acquisition you have made and said, here's what it looks like, we bought it, and now here is the success story?
Most recent acquisition, terrific company, everyone has heard of it.
We closed and five months later, it is completely integrated.
The organic growth of the company has accelerated since he bought it.
The pipeline is producing a bunch of new products for us.
The people, especially the ones outside the u.s., love it.
They like not having corporate telling them what to do.
I've now remember the point you made.
You said bill put $4 million at risk.
You have $4 million at risk?
I did some math and i admit i am not a mathematician, but the contrasted not cost $4 billion.
Qwest they didn't affect.
We own a one percent strike call option.
As soon as we get approval, we will acquire the underlying shares.
The exact same exposure economically as if we own the stock.
We have got a post collateral, billions of dollars on --, and when we close on the stock, -- the reason why you do this, when you buy more than $75 million of a stock, you cannot buy shares that kerry votes until you get approvals from the government.
What the government allows you to do is buy with options, get approval, and once you get approval, you can acquire the shares.
Every dollar that goes up, we benefit.
If the stock is down, we benefit by one dollar.
We have the same exposure.
Qwest that is what people need to understand.
It is not an option to buy or sell or not to.
You're saying that is not the case.
You have an obligation to exercise?
No, it is an obligation.
The stock, 120 five, we bought an option that a dollar.
Very little option alley.
We're looking for a way to be exempt from acquirement.
We allow economic exposure without having to file first with the sec, which would give the company noticed.
Qwest her phones were ringing off the hook yesterday by a -- an assortment of people.
Have the regulators said, let's take a step back and walk through this, have those who've possibly sold to you, are they saying, wait a minute, this does not smell right?
Class i have no idea.
Every time we sell stock in a company, like in the vast majority of cases people have sold to us, people see a move in the stock price and sell into it.
When we buy back, they tend to be better off.
People sold to us at $.34 and now $38 a share, they probably should not have sold.
We partnered with valium -- valley and -- valleant.
Qwest a lot of people look at the partnership and concluded there is nothing wrong or illegal about it.
It is possible it is one and done.
The fcc is already looking at closing the 10 day window you had which allows you to go from 4.99% to 9.7%. there is also talk that the fcc will look at redefining a group so you have to be corporate buyers and not a financial buyer like yourself, or that perhaps the pre-notification requirement you referred to come which only applies to voting shares, would be extended to beneficial ownership through auctions and former conference like you have.
Qwest you raise a lot of important issues.
The important issue is, if you look at, there are a lot of examples of companies that should combine very logical merger candidates.
Shareholders say, why did company a not combine with company b? everybody likes being a ceo.
Qwest that is right.
If you think it is a healthy thing for the markets to have investors like us to take stakes in the companies and catalyze corporate chains like this, a -- catalyze companies to operate more efficiently, you should allow us to continue to buy a large but minority stake in the business is.
It would be wrong to wake up overnight and the control should be given to someone else.
If bought 60%, there is an issue.
If you think shareholder activism is a thing for stock markets and capitalism and capitalism in keeping the balance of power, what you do not want to do is restrict activists from buying four percent of the company.
It will meaningfully diminish.
People are reluctant to the world and are fighting activists, they're largely trying to protect entrenched management.
They make the argument this is all short term.
I believe the short-term -- we are not short-term.
This is the opposite of a short-term deal.
We are saying the combined is a much better business.
We committed a large amount of capital to the entity.
We have a contractual -- to own the stock and we are a big believer not just in this transaction but when the company -- once this deal gets done, we believe what happens to this company from here, 102, 1 hundred 3, 1 hundred four.
Qwest you said you have over 100 acquisitions.
How did you have the money to pay for anyone else?
It seems like an extra night number to me.
Qwest many of the deals were small and most were with private companies and not competitive.
We have taken advantage of the low interest rate environment.
We have used debt.
We have deployed six percent money and returns on acquisitions.
As we buy them, those returns, that is a good business model.
Qwest one of the points i made yesterday in our is this presentation is if you are a player in industry where you have an enormous advantage in your operating strategy, your productivity in your salesforce, you could afford to pay what looks to the seller like a big price relative to what they are earning in that asset.
I made an analogy yesterday, the 3-d -- three g. what they have accomplished in the brewery industry and burger king, the reason they could buy burger king at a premium and the public market transaction in the company owned by private equity, they have a more efficient way of running a business.
They built a business model much more efficient than the entire industry.
They could pay a very good price to shareholders, but it is still an attractive return because they could run the if -- the business more efficiently.
That is a competitive advantage for the company.
Potentially dollar industry in terms of the public and private companies and industry who are potential acquisition targets, that is a very powerful combination.
Qwest yesterday, the investment bank it's -- bankers who cover you, are they out of business?
No, they say business.
No problem there.
We have been focusing mostly on investors.
That is where we are spending our time.
Qwest the point you're making about bankers, when asked to the first question about why you needed to do this with bill, you said if i had gone to goldman sachs were jpmorgan or morgan stanley or whatever, it would have cost me money.
One way looking at this, is that it is costing you money.
You came in at a price much lower than's -- where stock is today.
If this goes through at the price he offered, the difference would be considerably wider.
Why not look at this as a transfer of value from valley and to purchasing square?
If you had gone and bought those forward contrast, whatever upside there would be would be upside to valiant shareholders.
The vast majority of the upside is going to square.
On the point of paying for advice and capital markets activity, yes, a few hundred million dollars, but not a billion dollars.
That is what we're talking about here.
Qwest bill put at risk $4 billion.
We did not have $4 billion sitting at the bank.
We do not acutely cash, we use our cash.
Second, he took real risk.
He took risk, he would start buying but we did not decide until monday night with our board that we would move forward with the deal.
We could have chosen not to and their arguments for and against.
In the end of the day, i do not view it as a transfer value.
The price we would have set and paid for is the same with or without though.
Some shareholders will benefit.
Just so happens, if it works, bill wilson -- benefited our shareholders will benefit more.
All i care about is our shareholders.
Someone else makes money, and it enables us and me to deliver more shareholder value to my shareholders, i am fine with that.
Qwest i understand you don't -- you do not see it as a chance for -- transfer.
Some people do.
Qwest here, they are able to get the benefit of the target company without putting up any capital.
We take a risk on that investment.
We have the upside and the downside.
They can choose not to.
Valiant has a reputation -- if someone else comes along and pays a big price and comes away, that is great for us and they will make some money.
They get our profit.
Qwest one of the other reasons lie hostile deals do not tend to happen, they spend a lot of money with investment banks, they get commitments, and in the deal ends up getting shot to someone else and they get nothing.
Here, they get 15% of our profit on investment.
Qwest how did you decide 15 was the right price to align interests?
Qwest you wanted lesson he wanted more.
He probably out negotiated me.
Qwest 15% is the right price to align your interests because a higher price to another buyer, that is great for you and you get 15%, but you get 85. class i would love to focus you on what is really happening.
The deals are very interesting, but what is happening is the entire pharmaceutical, -- industry is changing.
There is a dynamic happening.
There is a lot of costs in these industries.
One of the few industries not enforced to operate with the same kind of economic industries.
Mike and his team had been a driving force leading the charge and making this a more shareholder oriented industry and making it more profitable.
One of the problems is the gross margins are so high and we have a business that makes so many margins that we do not focus on a researcher.
It is a very high business, but they operate as if they are a low margin company.
Qwest what about the criticism that you do not necessarily have organic growth?
You fire salespeople and then two years down the road, what happens to those?
Do you just need to churn out another acquisition?
Our critics say that.
We do spend money on r&d. we are watching 19 new products in the u.s. this year.
Since we have a different model, we do not invest in early-stage high-risk r&d. we invest in low risk r&d. late stage.
We do r&d. our sales forces, we have more sales reps spend most companies out there.
In poland, we have 400 sales reps and thousands in places like russia.
We invest heavily in sales reps.
We do not invest in people sitting in offices.
People sitting offices, you need your finance or itt team.
Qwest it is a beautiful case.
When you look at this, do you say, we will do this today and a special purpose vehicle, the first one, i will do this 10 more times in 10 different industries?
It is really a beautiful case.
I would say we do not want to partner with everyone.
We want people -- we want to partner with people in industries we like.
This is about establishing a position ultimately in the company.
That is not just for us before other shareholders.
We can facilitate transactions.
If we can get this done for the company and working with the company to get this done, i think this is a great thing.
Qwest our blackstone fat and happy and you put it to them right now that everyone said, why doesn't everyone operate like you?
Class we are just focused on this transaction as bill said.
It is is you shall you.
What is nice is our shareholders, they're going to put a stake in the upside.
They will own half of this company.
They not only get cash, so we are focused on this transaction and i cannot speak to other companies.
Qwest when you say health care presented this unique opportunity because it had not been disrupted in such a fashion before, is that to say, you see opportunities for investors to do much more interesting echo qwest i've never invested in a health-care company that i can think of a twentysomething years.
The reason is it is a very difficult industry and most pharmaceutical companies, they have got a patent life and a black box and they're trying to invent new products.
It is like a venture capital business.
What is unique is this reminds us much more of the companies we want to invest in there.
85% of the products are the kind of products where in health care, it is like advil or face cream.
It is more like unique products.
Products -- it is a huge r&d budget but botox, breast implants, it is highly regulated stuff, but it is more of a consumer product and has more of recurring characteristics and more the brand type characteristics than things we like.
These are as opposed to businesses were your consul elect in drug and someone introduces it tomorrow.
That is why there is a combination between the two companies.
Qwest stephen leicht this company, you are really invest thing in management style more than what the actual product is?
If that is the case, that is a whole new way of investing.
As i go back to my three g analogy.
What does heinz and burger king anheuser busch have in common?
They are all in the food industry, but what they really have in common is an industry with good gross margins but not the most efficiently run industry.
You have operators and three g phones, the best operators in the world, they have applied their operating competitive advantage in the industry and a made major advantages and created extraordinary wealth for the founders of the firm.
Qwest breast implants, french fries, and beer.
Just enjoy products.
We have to take a quick break here bill ackerman and mike pierson will stay with us.
This is "market makers" on bloomberg television.
Streaming on amazon, fire tv, and apple tv.
? let's live from bloomberg headquarters in new york, this is market makers.
Qwest you're watching market makers here on bloomberg television.
Qwest we are back.
Mike, value has been an investor.
What are they said since all the news came out yet the why did you call us, we would've liked to been a partner?
Qwest they were on the board.
They were crucial to bring amy on the company -- with ceo.
-- as ceo.
A different model than bill does.
They do not -- they do not have money ahead of time.
Their approach is more to invest in a company and get on a board and make changes.
A different model than phil's approach.
No one is being rated.
We're help -- you have to ask them.
Qwest you are their largest shareholder.
-- you are their largest shareholder.
What happens next?
There already gone.
Positions in place.
Even if management is open to a deal at some point, they may not be open to a deal at this price.
What will you do?
What do you anticipate?
What do you think might happen and how do you to -- do you two plan to respond?
Qwest the hope they can sit down and see -- that their job and my job.
We feel we put a fair offer on the table there if you look at our history, we are disciplined.
In this case it is nice, the shareholders are the same.
We will sit down with them.
We want to get a deal done.
We will be very disciplined.
We think there is a lot of value on the table to request what does very disciplined mean?
Some people would translate it to mean we are prepared to walk away at this price.
One of the reasons we like sally and is because they made a lot of acquisitions but did not overpay.
The value of the company, a huge part of the value of the company, is based on shareholding and management deals that make sense.
You could by any company that overpays.
What is good is usually it is bidding cash for the company.
The other transaction was a stock deal, the first in years where they're using stock as part of the deal.
It is a win-win.
They will get the benefit, a huge part of the benefit of value being created and $40 in cash.
Delicate balance of risk and reward, $48 off the table.
A company that will become more valuable.
As much as a shareholder, you would say, want the acquirer to overpay for me, when the acquirer is paying in stock, you want them to overpay for you and they're after, never overpay for anything again.
It is a ceo on a stock you do not want an interest in.
What mike has demonstrated is offering full and fair value but not overpaying is able to view 100 transactions over six years.
We have walked away from a couple and there have been a couple where -- we are not, this will not come down to us upping our premium a significant amount.
Qwest if the answer could not be both, i would look at valley and right now, which stocks should i buy?
Qwest you should by valiant.
Stock is trading a couple above the value of the transaction.
Valiant, in a deal typically, the treasurer buys the stock of the company being acquired.
That company could push down the value of the acquiring stock.
What i would do is you might buy the stock and short the stock on the that that you have got a premium.
They are trading above the price.
A simple thing to do is just to buy the stock there it if you look at the stock today, that means a low price for business with high single-digit and organic growth dates.
If the deal never happens, your fine.
This stock was 150 a month or two ago.
Today, it is 135. if this deal happens, we could together some numbers in our presentation and we think the business looks a lot more like consumer packaged goods companies.
If you take the patent drugs and value them and take the rest of the business and value them, you get business evaluations before assuming any value before a platform.
We think this is easily a $200 stock when the transaction closes.
Qwest you want to turn the fat.
What does that mean for management?
What is the future for the ceo?
He is one who created it.
The company has been a good performer.
A well respected company, with great products.
If we integrate, some senior management might like our model and want to stay and we might keep them and some may not.
Clearly, we do not need two ceo's, we do not need two cfo's, and we will make those decisions.
You have drawn inspiration from many different sources, including, at one point, one of our former colleagues.
Where did the idea, the genesis, for this approach originate?
Qwest everyone is saying right now -- qwest game changer, how did you come up with the idea?
Qwest mike and i bring different advantages.
They have an incredible ability to operate and run in the industry.
, to give a shout out.
There has been a great leading activist investor on the board for six years.
They created an enormous value and that is 25 ago.
We are coming in 25 up and from here, we're just applying the same kind of technique used.
Then we work with the management and the board and the shareholders to propose changes to make it more valuable.
Here, there is a benefit of the change.
I have a very good analogy.
North america, stock was $46 a share.
We bought 14% of the railroad and had in our pocket hunter harrison, the greatest railroad ceo of all time.
We had to advocate for hunter to become ceo of the company.
The board initially rejected us.
We have 13 directors.
The board elected hunter's ceo.
170 five yesterday.
We are still a major shareholder.
It is a little bit smaller than our investment but still 23% of our capital.
We are doing the same thing here.
The differences, instead of just a ceo that was retired at the time, we have a good -- we have got a whole management team and a strategic infrastructure that can create the synergies.
We are buying 10% of the company.
We will assist valiant.
It is a model for anyone.
If this is what you do for a living, i think we have unique attributes, but there are other very talented people in the industry that could do the same thing.
Qwest it is clear you are a long-term investor.
You have said you would take this to the end of the -- and of the earth.
Things are going in your direction at this point.
Will you not get out of this until he goes to zero?
Risk versus reward, i do not think the stock gradually goes to zero.
It is more of an overnight phenomenon.
You have a criminal investigation, the department of justice, the fbi launched a criminal investigation.
After 15 months of our being public about this, for them to launch a formal investigation, i do not think it is well known by her viewers -- your viewers.
It is a chance to make money and they are even more careful.
For them to go to a formal investigation here, with their time-to-market is that they certainly see evidence of serious problems from the company and the track record in going after pyramid schemes, they have 100% batting average.
Other than amway in the 1970's, when they go after an extensible marketing company for legal issues, the evidence here is incredible.
One of the things i find remarkable business -- is the stock is $57 a share.
It is overvaluation.
Qwest at this point, i do not