Yahoo, Drugs and Argentina
The last time I looked at Yahoo, in December, I calculated that the after-tax equity value of its actual businesses, outside of Alibaba and Yahoo Japan, was about $1.7 billion. It turns out that Yahoo was also looking at the value of its businesses, at around the same time, and it concluded that they were overvalued by about $4.5 billion:
We recorded a $4,461 million non-cash goodwill impairment charge as a result of our annual goodwill impairment test conducted in the fourth quarter of 2015. We concluded that the carrying value of our U.S. & Canada, Europe, Latin America and Tumblr reporting units exceeded their respective estimated fair values. The goodwill impairment resulted from a combination of factors, including decreases in our market capitalization, projected operating results and estimated future cash flows.
So that leaves … hmm. I see. Yes.
Yahoo, whose acquisitions and efforts to do more things all seem to have destroyed a lot of value, has now pivoted to a strategy of doing fewer things while also maybe selling itself. I am not an expert on whatever Yahoo is, but that seems about right. Here is the press release, announcing both "a strategic plan that we strongly believe will enable us to accelerate Yahoo's transformation" and that the board is "exploring strategic alternatives, in parallel to the execution of the management plan." (Also, layoffs of 15 percent of Yahoo's workers.) Bloomberg Gadfly's Shira Ovide is unimpressed, but then I guess literally everyone is unimpressed? It is not impressive:
“I expected defiance, and I expected a convoluted solution,” said Eric Jackson of SpringOwl. “My expectations were exceeded on both counts.”
Here is a profile of Jackson, who is fond of typo-filled 99-page slide decks, and whose SpringOwl fund is perhaps Yahoo's noisiest activist now that all of the bigger activists have given up in despair.
Elsewhere, here is the story of a man who is suing Yahoo for firing people illegally under its forced-ranking system. Or actually here is that story, twice: The New York Times says that he is suing because the forced-ranking amounted to illegal layoffs under California law, while the Guardian says that he's suing because of gender discrimination (against men). Here's his complaint, which mentions both theories, though it does rather stress the gender stuff.
If you are a drug company, and you acquire a drug that has no competitors, and you immediately massively increase the price of the drug, I would assume that you're doing it to make money. I am cynical about capitalism in that way, I guess. But there is at this point a fairly well accepted playbook for distracting attention from that obvious explanation. You're raising the price to fund research and development, for instance. Or, sure the list price of the drug is high, but you have assistance programs to make sure that anyone who needs it can get it.
Valeant Pharmaceuticals International Inc. and Turing Pharmaceuticals AG, both under congressional investigation over skyrocketing drug prices, were focused on making money before helping patients, members of Congress said internal documents obtained from the companies show.
“$1 bn here we come,” former Turing Chief Executive Officer Martin Shkreli said in an e-mail to the chairman of the board on May 27, after the company had made progress toward acquiring the antiparasitic drug Daraprim, according to a memo from House Oversight and Government Reform Committee’s ranking Democrat Elijah Cummingsof Maryland. After buying the drug later that year, Turing raised the price by more than 50-fold, to $750 a pill.
Here are the reports, on Valeant and Turing, and they are really just in no way good for those companies. Valeant had a presentation describing "PR Mitigation" as a "Critical Risk" to its plans, and suggesting that it should "Minimize media coverage of the pricing increase," oops. More worrying, perhaps, is an e-mail from Howard Schiller (then chief financial officer, now interim chief executive officer) to Mike Pearson (then CEO) saying that "about 80%" of Valeant's growth came from price, not volume, which John Hempton points out seems to contradict what Pearson said on an earnings call.
Turing, meanwhile ... I mean, it was run by Martin Shkreli, how do you think its internal e-mails read? "Mr. Shkreli practically gloated about the potential profits in an email he sent last August, just after his company, Turing Pharmaceuticals, had paid $55 million to acquire the drug Daraprim, and had raised its price more than fiftyfold to $750 a pill, or $75,000 for a bottle of 100." Turing even price-gouged a dog, though at least it had the heart to recommend a generic alternative:
On October 1, 2015, the Director of Specialty Pharmacy Development at Walgreens forwarded a request for financial assistance for a dog that had been prescribed Daraprim to treat its toxoplasmosis. The request stated: “I have an unusual request. There is a dog that is a patient and he needs Daraprim. He is obviously not covered by insurance … the cost of what was prescribed is $5,000 for this little guy.” Jon Haas, the Director of Patient Access at Turing, responded: “You can buy Pyramethamine/Sulfa [sic] combo pills from a vet meds website for about $80.”
In other Martin Shkreli news, he's got a new lawyer, "Benjamin Brafman, the same lawyer who helped get rapper Sean 'Diddy' Combs acquitted of gun and bribery charges in 2001." Shkreli asserts that he is "innocent, and not guilty," a potent combination, while Brafman is more circumspect, saying that "Mr. Shkreli never intended to violate the law, nor did he intend to defraud anyone." Shkreli does not, however, have a new public relations person. He's doing that himself. How is that working out?
Shkreli told Maria Bartiromo on Tuesday in an interview on Fox Business Network, in which he announced the change of legal counsel, that he thinks his plan is working. He added that people had stopped him “for autographs and selfies” on his way to the interview.
“The world is changing its mind about me,” he said. “I think the tide is swinging from, you know, this is a bad guy to people listening to me and really understanding who I am.”
To be fair, an actual public relations professional says of Shkreli's approach: "It’s certainly unconventional, but is it bad? I don’t think we know yet." I feel like I know?
I mentioned recently that Argentina has, for over a decade and in increasingly absurd circumstances, consistently made one offer to its holdout bondholders: You can get 30 cents on the dollar for your old bonds. The holdouts wanted more. There were some lawsuits, a boat was seized, it was a big mess.
So this is amazing news:
Argentina agreed to pay $1.35 billion in cash to a group of Italian investors who hold its defaulted bonds, marking the first time the Latin American nation has reached an accord with holdout creditors who refused to participate in earlier restructurings.
More amazing is that the Italian investors "agreed to accept payment of 150 percent of the $900 million in face value." Now, 150 is more than 30. It is even more than 100. Argentina is giving these investors back more than the face amount of their bonds. (Because they've missed more than a decade of interest; their actual claim was for $2.5 billion, and they settled for just over half that.) It's even more than 120, Argentina's earlier offer to its larger set of holdouts led by Elliott Management.
Of course there's no Elliott deal yet, and at the news conference announcing the Italian deal, economy minister Alfonso Prat-Gay said that "The difficulty that we have right now is that some bondholders want to be paid an interest rate that, under any type of judicial criteria, is unacceptable." Also the fact that Elliott still has an injunction against Argentina will presumably make it difficult to actually pay the Italian investors. Still, you'd have to call it progress.
Elsewhere, Gramercy Funds Management LLC has "accused Peru of withholding information about disputes over decades-old defaulted debt when it sold new bonds," but no one else seems to care. And in Puerto Rico, the good news is "Republicans Show Signs of Compromise on Puerto Rico," while the bad news is that "Puerto Rico’s financial troubles are so complex and far-reaching that bankruptcy alone will not solve them, and might even make them worse, experts on financial distress told lawmakers in Washington on Tuesday."
The latest effect of the Newman decision is that Doug Whitman, a hedge fund manager convicted of insider trading in 2012, will get out of a halfway house on bail while the Second Circuit Court of Appeals considers his appeal. He had four months left, and I have to say it would be depressing to have to go back in if he loses on appeal. Presumably he won't, though; one judge on the panel hearing the bail argument called the government "sadistic" for opposing his release, and "said it was 'beyond dispute ... that Judge Rakoff got it wrong in his jury charges.'" It's a little strange, though: The Second Circuit had already affirmed Whitman's conviction, before Newman was decided, so it's awkward to revisit it now.
People are worried about unicorns.
In good unicorn news, "Magic Leap, a secretive augmented reality start-up based in Dania Beach, Fla., announced on Tuesday that it had raised a $793 million round of venture financing, valuing the company at $3.7 billion, excluding the new funds." Augmented reality, I gather, is like virtual reality overlaid on the real world; it's like, you get a real horse, you slap an augmented-reality horn on him, and voilà, unicorn. The pictures in the New York Times and Financial Times suggest that augmenting reality consists mainly of putting whales in places where whales shouldn't be (jumping onto a crowded beach, jumping up from the floor of a school gym), so I guess, prepare for a brave new world of whales jumping around everywhere.
In Blood Unicorn news, Steven Davidoff Solomon points out that it's weird for David Boies to be both Theranos's outside litigator and also a director: "Depending on what unfolds at Theranos, Mr. Boies may be put in a position where he either has to protect the company (as its lawyer) or the shareholders (as a director)."
Elsewhere, here is "IPO Pricing as a Function of your Investment Banks’ Past Mistakes: The Case of Facebook."
People are worried about stock buybacks.
Here's a twofer of "Apple Has Wasted Billions on Buybacks" and "What Apple Should Have Done With Its $130 Billion Instead of Buybacks" (by Eric Jackson). The answer to the latter is mergers and acquisitions:
For that amount of money, they could have tried to buy Facebook for $100 billion back after it got valued at $50 billion (which I argued for at the time), as well as Twitter and Tesla and have had money left over. In my view, had they done that, they would have a much higher market capitalization today than they currently do.
Sure. I guess Apple could buy Yahoo now, and have enough money left over to do everything it was going to do anyway.
People are worried about bond market liquidity.
This isn't quite bond market liquidity, but here is a worry that bond exchange-traded funds have fees that are higher than their yields, and bond ETF worries are close enough to bond liquidity worries for me:
Consider the iShares International Treasury Bond ETF, a $513 million exchange-traded fund that focuses on non-U.S. government debt. The fund’s expense ratio is 0.35 percent while its 12-month yield is only 0.1 percent, according to data compiled by Bloomberg.
I wrote about long-termism. At the Financial Times, Stephen Foley writes that "US campaigners for improved shareholder rights may well be sceptical of a new set of corporate governance principles for public companies being hammered out by the country’s largest asset managers."
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