Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Another day, another piece of (superficially) good Valeant news, another stock-price boost that will likely make a fruit fly look long-lived. 

Valeant's stock popped 5.5 percent on Friday on the news, originally reported by The Wall Street Journal, that Japanese pharma firm Takeda and private equity giant TPG reportedly approached the floundering company about a possible takeover a month or two back. The offer was rejected, and talks are not ongoing. The discussion apparently never progressed to a firm offer price.

Valeant has a way of disappointing investor hopes. The Takeda/TPG approach is best seen as an idle kick of some distressed tires to see exactly how cheap they are. It's unlikely to represent any broader interest in taking the company over. 

Can't Stop the Pop
Valeant shares are up on the news that a Japanese pharmaceutical firm and a private equity firm showed interest in a takeover earlier this year.
Source: Bloomberg
Intraday times are displayed in ET.

Any buyer is likely to want only a hunk of the business, to pay a significant discount, or both. The company's current set of largely unrelated, investment-starved, price-hike-dependent, and under-performing businesses is unlikely to attract much of a premium as a whole.

Valeant has shown reluctance to sell attractive core assets such as Bausch & Lomb on their own. And the assets it's apparently willing to get rid of are less than appealing. Major asset sales could also leave the company struggling to generate revenue. 

If only a deal for the whole company will do, then it's not just the assets themselves that are an issue, but also the company's $31 billion in total debt. It's difficult to imagine any suitor would be so enamored of Valeant's business that it would be willing to take that weight. 

That the Takeda/TPG deal was apparently rejected before a firm price emerged can be read as suggesting Valeant's board believes in its ability to turn things around with new CEO Joe Papa.

But it also suggests the company's investors and board are entirely unwilling to entertain a sale at anything near the company's current market value. Valeant's share price has fallen nearly 90 percent from its peak last summer. Its current market cap of about $10 billion is less than the $13.4 billion it paid for stomach drugmaker Salix a year ago, the asset that apparently interested Takeda. 

Some other big stakeholders such as ValueAct and Ruane Cunniff got into Valeant significantly earlier than Pershing Square's Bill Ackman, so they don't have the same kind of losses he does on a cost basis. Ruane Cunniff paid an estimated average of $27.51 for its shares, while ValueAct paid $32.95 according to Bloomberg data. Pershing Square's average cost basis for its 21.5 million shares was $153.21. 

Bill Ackman likely didn't join the board and take a highly active role at the company in order to accept the kind of losses even an offer at a huge premium would represent. 

Ouch.
The value of the holdings of some of Valeant's major shareholders has received a rather severe haircut since last year. Market value of positions.
Source: Bloomberg/Filings
Both ValueAct and Ruane Cunnif have sold shares, which has also contributed to the decline in the market value of their Valeant holdings. Pershing also owns more than 9 million Valeant call options.

Believe in the turnaround, if you dare, or that the company might get over its resistance to breaking up. But there's no white knight coming for Valeant. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net