By Jacob Wolinsky. Originally published at ValueWalk.
Valeant Pharmaceuticals halted trading in pre-market hours for news which we are awaiting and will update when it comes in.
Analysts at Rodman & Renshaw have also weighed in this AM (pre-big news announcement) stating:
Default risk may be manageable. From our perspective, the most substantial risk is that of debt default. It is important to note that Valeant has not missed any bond payments and that the primary rationale
for an event of default is related to the covenants in Valeant’s debt agreements that pertain to the filing of the firm’s financial statements. Since Valeant has yet to file its 10-K, it now has a rapidly ticking clockin which to avoid default. We believe that if Valeant can: a) come to terms with its creditors on a timeline for the filing of its 2015 10- K and 1Q 2016 10-Q; and b) file its financial statements in line with this compromise, any near-term risk of default should be mitigated. We note that it is not in creditors’ best interest to force the company into default. Accordingly, therefore, if the firm can demonstrate that it would be able to file its financial statements near term, we believe a compromise can be struck. We reiterate our Buy rating and 12-month price target of $118 on VRX, while noting that an event of default would clearly have material consequences to our thesis and rating.
UPDATE 9:AM EST:
Valeant Announces CEO Succession Plan And Changes To Board Of Directors; Provides Accounting And Financial Reporting Update -Dow Jones
Initiates Search for New CEO; J. Michael Pearson to Remain as CEO Until Successor is Named
William A. Ackman Joins Board of Directors; Katharine B. Stevenson Steps Down from Board
Ad Hoc Committee Review of Accounting and Financial Reporting Matters Nearing Completion
Valeant Plans Restatement Based on Previously Announced Misstatements
Valeant Explains Circumstances that Resulted in Delay in the Filing of 10-K
Also see Valeant (VRX) Crashes: Ackman Sends Letter To Investors
LAVAL, Quebec, March 21, 2016 /PRNewswire/ — Valeant Pharmaceuticals International, Inc. (NYSE: VRX) (TSX: VRX) today announced that it has initiated a search for a new chief executive officer, appointed William A. Ackman to its board of directors, and provided an update on certain accounting and financial reporting matters.
CEO Search
Valeant today announced that the board has initiated a search to identify a candidate to succeed J. Michael Pearson as chief executive officer. Mr. Pearson will continue to serve as CEO and a director until his replacement is appointed.
Robert Ingram, chairman of the board, stated, “While the past few months have been difficult, Valeant has a collection of leading brands, valuable franchises and great people, and I am confident that the company will be able to rebuild its reputation and thrive under new leadership. We thank Mike for his dedicated service to Valeant and for agreeing to stay on until we conclude our search. As a colleague and a friend he will be missed, and we wish him the best for the future.”
“It’s been a privilege to lead Valeant for the past eight years,” said J. Michael Pearson, chief executive officer. “While I regret the controversies that have adversely impacted our business over the past several months, I know that Valeant is a strong and resilient company, and I am committed to doing everything I can to ensure a smooth transition to new leadership.”
Changes to Board of Directors
Valeant today announced that William A. Ackman, CEO of Pershing Square Capital Management, L.P., will join its board of directors, effective immediately. Mr. Ackman, whose firm has a 9.0% stake in Valeant, will join Pershing Square’s Vice Chairman,Stephen Fraidin, on the board. As the maximum size of Valeant’s board currently is fixed at 14 directors, Katharine B. Stevensonvoluntarily resigned from the Board to create a vacancy to permit Mr. Ackman’s appointment. The Board requested that former chief financial officer Howard Schiller tender his resignation as a director, but Mr. Schiller has not done so.
Robert Ingram, chairman of the board said, “We look forward to Bill Ackman’s perspective and contributions as a new member of our board and one of Valeant’s largest shareholders. The Board thanks our valued colleague, Kate, for her service on our Board and for voluntarily offering to step down in order to allow Bill Ackman to join the Board.”
William A. Ackman, CEO of Pershing Square, said, “I am looking forward to working with the board to identify new leadership for Valeant. The company’s large scale and dominant franchises in eye care, dermatology, GI, and other therapeutic areas coupled with its extraordinarily low valuation present a spectacular opportunity for a world-class health care executive. On behalf of all shareholders, we are extremely appreciative of Valeant employees’ hard work and commitment during this challenging time for the company.”
Accounting and Financial Reporting Update
As previously disclosed, on February 22, 2016, based on the work of an ad hoc committee of the Board (the “Ad Hoc Committee”) established to review allegations regarding the company’s relationship with Philidor and related matters, as well as additional work and analysis by the company, the company preliminarily determined that approximately $58 million in net revenue relating to sales to Philidor in the second half of 2014 should not have been recognized upon delivery of product to Philidor.
Management of the company, the Audit and Risk Committee (the “Committee”) and the Board have concluded that the company’s audited financial statements for the year ended, and unaudited financial statements for the quarter ended,December 31, 2014 included in the company’s Annual Report on Form 10-K and the unaudited financial statements included in the company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 should no longer be relied upon due to the misstatements described in the company’s Form 8-K filed today. In addition, due to the fact that the first quarter 2015 results are included within the financial results for the six-month period included in the Quarterly Report on Form 10-Q for the period ended June 30, 2015 and the financial results for the nine-month period included in the Quarterly Report on Form 10-Q for the period ended September 30, 2015, management, the Committee and the Board have concluded that the financial statements for such six-month and nine-month periods reflected in those Quarterly Reports should no longer be relied upon.
The company is in the process of restating the affected financial statements and the restated financial statements will be included in the company’s Annual Report on Form 10-K for the year ended December 31, 2015, which the company intends to file with the Securities and Exchange Commission and the Canadian Securities Regulators on or before April 29, 2016. The company believes that after giving effect to the restatement, it will have remained in compliance with all of the financial maintenance covenants in its credit facility at the end of each affected quarterly period.
Robert Ingram, chairman of the board and chair of the Ad Hoc Committee stated, “Over the past five months, the Ad Hoc Committee has worked closely with our independent advisors to conduct a comprehensive review of Philidor and related matters. While the Ad Hoc Committee is still
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