Valeant Headlines Puncture Strategy as Stock Drops: Opening Line

Valeant fell 3.5 percent yesterday, the biggest drop in two months and for its eighth consecutive day of declines, during which it has lost 10 percent. The stock now trades below its price on the day Valeant announced its bid for Allergan, which won’t help its cause.

And don’t blame ValueAct.

The declines started June 3, a drop of 1.4 percent, the same day Seeking Alpha wrote a piece headlined "Valeant Bulls Don’t Understand This Accounting Trick, Allergan Shareholders Need To; A Tutorial On Capitalizing Vs. Expensing."

"This article uses a simple example to clearly illustrate this accounting trick. Valeant’s stock is hugely overvalued, due to the usage of its favored price-to-cash earnings measure," the preamble to the item says.

That article was preceded a day earlier by another Seeking Alpha piece, "Valeant: Poor Earnings Quality Masked By Acquisition Related Pro-Forma Reporting."

On June 4, the New York Times’ Dealbook blog wrote a post headlined "In Valeant’s Bid for Allergan, an Opaque Business Model Is Revealed." In it, the Times called the saga "one of the biggest takeover battles in an age."

In these eight days, the presses have been humming.

The Wall Street Journal wrote "Bid for Allergan Puts Valeant’s Research and Development Cuts Under Scrutiny" on Wednesday. That same day, the website "" put up a post summarizing the WSJ story and the Dealbook story with the headline "Hostile Allergan bid is part of Valeant’s war on ’value-destroying’ R&D."

Yesterday brought us "Valeant Pharma’s Arguments About Drug Research Are Misleading And Wrong" from Forbes, which included this passage: "[Valeant’s] treatment of figures relating to the industry’s R&D productivity is so indefensible as to beg the question of whether its executives can really command the facts they are using, or whether they really understand the trends on which they say they are basing their business."

Also yesterday, another Dealbook post: "Goldman’s Unusually Quiet Role in Allergan Battle," detailing how Goldman Sachs is on both sides of this fight, having been sole underwriter of a $2.3 billion offering of Valeant shares less than a year ago, of which it bought $300 million itself, as well as being hired to advise Allergan on its defense of Valeant, including arguments against Valeant stock -- the stock Goldman owns.

And yet another yesterday from Forbes: "Why Allergan’s Shareholders Should Be Wary About Valeant’s (and Ackman’s) Takeover Bid."

We won’t get into all the arguments because it would take too long and we’re not smart enough to understand all of it anyway. We don’t know who’s right -- whether Valeant’s allergy to research and development is justifiable and its strategy of buying companies with products ready to be sold is a solid one, and whether it’s a valid accounting method to treat expenses from its recurring practice of buying companies as nonrecurring -- or whether R&D spending justifiably bears fruit and Valeant’s practice of gutting R&D is short-sighted.

But there’s a lot of noise out there.


We’ll get producer prices today at 8:30 a.m. EDT and UMich consumer confidence at 10 a.m. Adobe Systems will report earnings after the bell, and annual meetings will be held by Time Warner Inc., Chesapeake Energy and Regeneron, among others.

The Bank of Japan said overnight it was maintaining stimulus of 60 trillion to 70 trillion yen ($688 billion) annually.

+ Iraq has launched air strikes on Sunni militants marching toward Baghdad, the Financial Times reports, as the U.S. weighs whether to return to this fight.

+ Treasuries’ yield curve is approaching its flattest level in five years.

+ Ukrainian insurgents suffered "heavy losses" in clashes with government troops in Donetsk.

+ BOE interest rates might rise sooner than you thought, Mark Carney said last night.

+ Big elections this weekend: for the presidency in Afghanistan, where they’re voting in a runoff to replace Karzai; for the presidency in Colombia, where Santos wants to make deals with FARC rebels and challenger Oscar Ivan Zuluaga does not; and for prime minister in Finland, where there is probably considerably less gunfire.

+ Stocks trading privately accounted for 40 percent of total share volume this week, a two-year high, just as regulators tasked with figuring this stuff out are rolling up their sleeves.

+ Univision is shopping itself and has met with CBS and, the Wall Street Journal says, Time Warner Inc.

+ Donald Sterling has hired private investigators to dig up dirt on the NBA’s league office and his (former) fellow owners.


To those who think Elon Musk just blew a hole in the auto industry and became a pariah to patent lawyers in one day, think again.

That’s what we had thought. But his announcement yesterday that Tesla Motors was opening its patent vault for others to use "in good faith" was mostly unusual only in that he announced it, ace patent reporter Sue Decker tells us.

For those, too, who see this as some grand altruistic gesture, that’s also false, she says. His reasons are "very much in his self-interest." He’s not abandoning defense of his patents, he’s just letting you use them.

"They need this scale. They need the charging stations, they need to get more people into the electric-car industry, into that market, and one way to do it is to say, ‘Hey, we have this ground-breaking technology, why don’t you use ours?’"

"The benefit that they get of course is that they then become the standard that everybody’s going to be using, and it makes it easier for them to grow and allows them, especially for the charging stations and component parts and things like that, to adapt them into their products," Decker says. "They don’t have to make a whole lot of changes because people with change with them."

We will not be playing poker with Elon Musk.


What with the World Cup and U.S. Open beginning yesterday, there was limited space to follow up on the earthquake in the Virginia primary election. But Eric Cantor’s wounds are still fresh enough, so let’s double back briefly to look at David Brat, the man who defeated him.

Because he has little political record to examine, we’re left with his statements and theories. We’ll skip over the immigration stuff; his statements about how Plato learned at the foot of Socrates "on a rock," which is his way of disparaging education spending; or his understanding of the role of banks in the housing crisis; or climate change.

It’s his views on Christian theocracy: Sounds like he’s all for it.

Now, before the regular correspondents warm up the invective machine, this is not to say religion is bad, or that Calvinism’s justifications for usury and capitalism are (too) bad, or that limited government is bad -- that these things are bad in and of themselves. Bleach and ammonia aren’t bad in and of themselves, either. It’s when you mix them that things get dangerous.

An excerpt from a paper the former seminarian wrote, cited by and the Wall Street Journal, for those who think it matters where this stuff comes from, suggests that religion needs to overtake government.

"Capitalism is here to stay, and we need a church model that corresponds to that reality," Brat wrote. Never mind that follows the teachings of a man who (reportedly) divided two fishes and five loaves of bread to feed thousands, perhaps one of the first acts of socialism ever recorded, but OK -- render unto Caesar what is Caesar’s. We get it.

"We should love our neighbor so much that we actually believe in right and wrong, and do something about it. If we all did the right thing and had the guts to spread the word, we would not need the government to backstop every action we take," Brat wrote. In the same essay, in an ostensible criticism of the right, he asks rhetorically, "Can Christians force others to follow their ethical teachings on social issues?"

Sounds like you were just trying to.

"The political right likes to champion individual rights and individual liberty, but it has also worked to enforce morality in relation to abortion, gambling, and homosexuality," he wrote, according to those publications.

Yet, in front of an audience and referring to kids these days, he said that when they’re unable to name "a serious theologian, or a serious religious leader, at the national level, your culture’s got a major problem. We got a major problem."

So as this David, who took down a Goliath, reveals his political policies in the days to come, we’ll keep an eye on what government means to him. If he even knows.


Once Brat goes from Virginia to Washington, and he will, he’s probably going to encounter Don Beyer, who won the Democratic primary in a Virginia congressional district 50 miles away and stands for the many of the things Brat doesn’t.

So they’ll probably be canceling each other out a lot, and that’s more by accidental design than by accident itself, as Laura Litvan explains today in her examination of the gerrymandering and how the redrawing of districts is becoming a science. Computer science.

Computer software is helping political parties tailor their areas of representation using voter registration data that drills down to a particular street or block.

"It’s often the case that it’s legislators picking their constituents and not the other way around," Geoffrey Skelley, associate editor of Larry Sabato’s Crystal Ball, a website of the University of Virginia’s Center for Politics in Charlottesville, tells Litvan. "It’s relatively easy with modern technology to know exactly where to splice the lines."

Does this computer have an eject button?


Looks like Obama’s term in office can’t end soon enough for a potential run at the White House by Hillary Clinton.

She’s still beating potential Republican presidential candidates in the last of this week’s Bloomberg National Poll, but there’s seepage, and the polling company’s director, J. Ann Selzer of Selzer & Co., is suggesting the president’s dragging her down. Earlier this week, Selzer’s polling found Obama’s favorability rating has fallen to the lowest mark of his presidency.

"Hillary Clinton may be suffering from contagion from President Barack Obama’s sinking scores," Selzer tells Jonathan Allen today. "She is down across the board, even with groups that have been her most ardent supporters."

Getting into a spat with NPR’s Terry Gross isn’t going to help. Who fights with Terry Gross besides Gene Simmons?


Supersonic air travel is taking off again. A study in February by researcher Rolland Vincent Associates found a potential market for more than 600 supersonic business jets in the next 20 years, which is why Oak Hill Capital’s Robert Bass has sunk more than $100 million into developing a successor to the Concorde.

Done in by rising operational costs, the effect of the Sept. 11 attacks on air travel and, of course, the accident one of the Concordes had in July 2000, flying faster than the speed of sound has been unavailable since 2003.

Enter money.

"There’s a large demand for a very fast aircraft," Doug Nichols, chief executive officer of Bass’s aviation company Aerion and a former Boeing executive, tells Stephanie Baker for Bloomberg Pursuits magazine. "Something that can compress time is going to find a tremendous reception."

Might be game for this. Are there kids on these flights?


A couple of sequels hit theater screens this weekend, "22 Jump Street" and "How to Train Your Dragon 2." Both movies have Jonah Hill in them, so he’s hedged.

We saw "21 Jump Street," the movie, and it was funnyish until (spoiler alert) Johnny Depp shows up at the end and dies in a hail of bullets. Then it was funnier. This time the guys move from undercover high school narcs to the college game. Hilarity ensues, presumably.

In fact "22" is getting actual raves and maybe one of those rare movies when the sequel is funnier than the original, like "Godfather 2."

(What. Never seen it. It’s not?)


San Antonio, who beat Miami by 19 points in Game 3 of the NBA finals, moved out to a 3-1 series lead after beating them by 21 last night, 107-86. After taking both games Games 3 and 4 in Miami, the Spurs return home Sunday for Game 5, and a Game 7 in this year’s rematch of the 2013 championship is looking less likely.



Martin Kaymer shot a 5-under 65 yesterday in the first round of the U.S. Open, which is not going to make the U.S. Open people very happy. Look for them to engineer this course back to par in short order as we go through the rest of the weekend.

Before it's here, it's on the Bloomberg Terminal.