Valeant Holder Brahman Exits Long-Held Stake After Plunge

  • Brahman also sells stake in drugmaker Endo during 1st quarter
  • Grantham and Jana Partners sell their Valeant shares too

Brahman Capital, which had invested in Valeant Pharmaceuticals International Inc. for at least seven years and was one of its biggest holders, exited its position last quarter as the drugmaker’s shares plunged and leader departed.

Brahman sold 8.12 million Valeant shares during the first quarter, along with its entire stake in drugmaker Endo International Plc, according to a regulatory filing Monday. Both stocks have plunged more than 80 percent in the past year as Valeant’s accounting and drug-pricing polices have come under scrutiny. Endo and Valeant both rely on acquisitions to drive growth.

Long before other hedge funds were piling into Valeant, New York-based Brahman was betting on the drug company as part of a strategy to identify transformative CEOs. As of Dec. 31, the firm’s investments in Valeant and Endo had market values of $825 million and $238 million respectively, equaling about 32 percent of the $3.3 billion of U.S. stocks that Brahman reported holding at year end.

CEO Michael Pearson was Valeant’s main architect, building the drugmaker into what was once a Wall Street darling through debt-funded acquisitions, research cuts and aggressive price increases. In late March, Pearson agreed to step down as part of a management shake-up at the company. Joseph Papa became Valeant’s CEO this month.

Valeant Strategy

Since at least the third quarter of 2009, whenever Valeant stock tumbled, Brahman would increase its bet by purchasing additional shares and options, only to be richly rewarded as the stock recovered its losses and continued to climb. The firm followed a similar strategy during the fourth quarter of last year, roughly doubling its stake through the purchase of 4.1 million Valeant shares during the period. Only this time, instead of bouncing back, Valeant continued to plunge, dragging down Endo as well.

Grantham Mayo Van Otterloo & Co. and Jana Partners also sold their Valeant stakes. GMO held about $447 million in shares and Jana had about $159 million at the end of the fourth quarter. Appaloosa Management added a $25 million Valeant position as of March 31. Blue Ridge Capital sold its shares in Endo, valued at $126 million at the end of last year.

Brahman, founded in 1989 by Mitchell Kuflik, Peter Hochfelder and Robert Sobel, runs long-short funds “with a strong emphasis on the quality of company management,” according to the firm’s investment adviser registration with the U.S. Securities and Exchange Commission. In selecting stocks, Brahman looks for “superior management teams with a prior track record of delivering shareholder value and who also have a substantial equity incentive,” according to the registration.

Brahman, which had net assets of $5.5 billion at the end of last year, was set up by the three co-founders several years after they graduated from college. Kuflik graduated from Harvard University with a degree in economics in 1984, the same year that Hochfelder graduated from the University of Pennsylvania with a B.S. in economics. Sobel earned a bachelor’s degree with a major in international relations from Penn in 1985.

Money managers who oversee more than $100 million in equities in the U.S. must file a Form 13F within 45 days of each quarter’s end to list those stocks as well as options and convertible bonds. The filings don’t show non U.S. securities, holdings that aren’t publicly traded or cash.

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