The Morning Brief: Valeant’s Stock Is On the Move

January 11, 2017   Stephen Taub

Is this the year of the Valeant Pharmaceuticals International turnaround? Will the embattled drugmaker’s largest investors finally be rewarded for their patience? It’s starting to look like a possibility. On Tuesday, Valeant saw its stock surge 7 percent, closing at $16.42, in the wake of announcements that it’s selling several assets for more than $2 billion. Valeant said it will use the proceeds to permanently repay term loan debt. On Tuesday the company revealed that it would sell its AcneFree, AMBI, and CeraVe skincare brands to L’Oréal; the day before it said it would unload its equity interests in Dendreon Pharmaceuticals to Sanpower Group Co., a privately owned conglomerate in China. Shares of Valeant are now up nearly 15 percent for the year after dropping about 84 percent in 2016. At the end of the third quarter of last year, its three biggest shareholders were Pershing Square Capital Management, Paulson & Co., and ValueAct Capital Management. PointState Capital was the fifth-largest shareholder.

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Shares of activist favorite Chipotle Mexican Grill jumped almost 5 percent on Tuesday, to close at $414.48, after the casual Mexican dining chain reported that same-store sales climbed 14.7 percent in December. This could be a signal that customers are finally returning to the embattled company following its food poisoning problems. Same-store sales had declined by 1.4 percent in November and 20.2 percent in October. In late October, Pershing Square Capital Management bought more than 2.3 million shares of Chipotle for about $407 apiece, boosting the activist hedge fund firm’s stake to 9.9 percent. In December the chain agreed to name four new members to its board of directors as part of a compromise agreement with Pershing Square.

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Lousy performance has consequences, a lesson that employees at Odey Asset Management are learning painfully. One week after Crispin Odey’s main fund finished 2016 down 49.5 percent, the London-based firm has begun firing staff to save money, according to the Times. "We are saying goodbye to some of our people," Odey told the paper. "As always, we look to manage our costs." Odey now manages about $8 billion. Although the firm correctly predicted the Brexit vote, it got China wrong. "We didn’t anticipate that the Chinese would reflate like they did last year," Odey reportedly said.

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The average hedge fund gained 5.34 percent last year, according to eVestment, a sharp rebound from the 0.72 percent loss for 2015. "All major hedge fund segments produced positive returns in 2016," the hedge fund scorekeeper says in a new report. Energy was the top strategy, gaining 11.5 percent in 2016 after losing 7.82 percent the previous year. Event-driven and activist hedge funds posted an average gain of 10.43 percent, making them the second-best-performing sector. Drilling down geographically, Brazil-focused hedge funds surged 33.29 percent. However, they came up short of their high-water mark after losing 31.23 percent in 2015.


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