Courtesy of ZeroHedge. View original post here.
In the infamous words of Kenny Rogers, "you gotta know when to fold 'em," but in the case of Bill Ackman and his Pershing Square Fund's massive losing position in Valeant (19.47 million shares at average cost of $183.57 against today's $87.11 lows), he has decided to not just double-down, but triple-down by selling puts to fund calls and increase his stake in the company to 9.9% (or 34.12 million shares).
As the Press Statement notes,
Pershing Square Holdings, Ltd. Increases Position In Valeant Pharmaceuticals International
AMSTERDAM — November 23, 2015
Regulatory News:
Pershing Square Capital Management, L.P., the investment manager for Pershing Square Holdings, Ltd. (ticker: PSH:NA) has updated its Schedule 13D with the United States Securities and Exchange Commission, disclosing that various funds it manages increased their beneficial ownership of Valeant Pharmaceuticals International, Inc. (ticker: NYSE: VRX), to 9.9% of shares outstanding.
The Reporting Persons purchased for the accounts of the Pershing Square Funds a net amount of 2,144,618 shares of Common Stock and over-the-counter American-style call options referencing 12,500,000 shares of Common Stock for aggregate consideration of $475,461,812 (including commissions). In addition, the Reporting Persons sold for the accounts of the Pershing Square Funds over-the-counter European-style call options and over-the-counter European-style put options, each call and put referencing a total of 12,500,000 shares of Common Stock and received aggregate consideration of $168,966,200.
The actual trades:
Which translated into English means that he spent $475.5MM on calls for 12.5mm in stock, and offset this by selling puts for 12.5MM in stock for $169MM.
In other words, Ackman buys the collapse in size…
By buying calls, selling puts, Ackman is now syntehtically long 12.5MM Valeant shares at a fraction of the actual price: Ackman's cash cost per share equivalent was $24.5, confirming that he didn't even have the cash to buy the shares and thus had to leave himself considerably more exposed to time decay and, of course, another plunge in the stock which this time will lead to even bigger margin calls.
Which leaves him 'proxying' 34.12 million shares at an average cost of $113.76…
Although his exposure is dramatically non-linear should things not work out (and note he remains drastically underwater still even on this newly acquired position).
