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 The billionaire, famed for his brash bets, swept up 2.1 million
additional shares as the Canadian-based company plunged as much as
40 percent on a report from an influential short-seller that it may
have fraudulently inflated revenues, the source said.
The purchase means Ackman's Pershing Square Capital Management is
now the company's second-largest shareholder, leapfrogging asset
manager T.Rowe Price. Pershing Square Holdings confirmed late on
Wednesday that the company acquired in excess of two million shares
of Valeant
Ackman lost about $500 million in Wednesday's rout and the source
familiar with Ackman's fund said his Valeant bet is down about $1.4
billion so far this year.
"The guy eats nails for breakfast," one investor said of Ackman, who
last year was among the hedge fund industry's top performing
portfolio managers.
Valeant’s market capitalization decline on Wednesday was $9.62
billion.
Ackman, renowned for betting $1 billion against nutrition company
Herbalife and waging a public campaign to see his gamble through, is
now, indirectly, on the receiving end.
Short seller Citron Research published a report on Wednesday,
accusing Valeant of failing to disclose ties to specialty pharmacies
which helped create "phantom sales" of its products.
Valeant denied the allegations.
Overall, Valeant's top five investors could have lost a combined
$2.76 billion on Wednesday based on their holdings as of June 30.
Activist fund ValueAct, a top five shareholder, lost an estimated
$422 million but because it was an early investor in Valeant, it is
still sitting on significant gains.
The fund declined to comment on the Valeant meltdown but ValueAct
warned in a second quarter letter to investors that its Valeant
holding was more than 20 percent of the firm's portfolio, nearing
the "upper limits of our comfort zone."
ValueAct said in the second quarter letter that it was "right
sizing" its Valeant holdings but it was unclear how many shares the
firm held as of Wednesday.
Investment firm Ruane, Cunniff & Goldfarb, Inc has an even larger
exposure to Valeant - both in terms of actual shares owned and in
terms of the percentage of the fund's portfolio.
According to Thomson Reuters data, investment firm Ruane, Cunniff &
Goldfarb owned 9.9 percent of Valeant shares as of June 30,
comprising one-third of the fund's portfolio.
Hedge fund Paulson lost an estimated $253.97 million based on its
holding as of June 30.
Ruane, Cunniff & Goldfarb and Paulson did not return calls seeking
comment.
UNCOMFORTABLE TWIST OF FATE
The Valeant losses could cement Ackman's fund's place as firmly in
the red for 2015, an uncomfortable twist of fate for a fund that in
2014 yielded 40 percent returns and bested a field of high-profile
rivals.
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Pershing Square was down nearly 13 percent for the year by the end
of September, according to investors, after market turmoil struck
several of its holdings.
Other hedge funds with big bets on Valeant include Nehal Chopra's
Tiger Ratan Capital Management, Brave Warrior Advisors, Lone Pine
Capital and Viking Global Investors.
By the end of June, Goldman Sachs estimated that hedge funds owned
22 percent of Valeant's stock.
"Hedge fund managers with great track records have stood by their
conviction that Valeant is a great company despite a growing list of
questions about its business model, its pricing policies, its pile
of debt and the determination of potential acquisition targets to
stay out of Valeant's clutches," said Erik Gordon, a professor at
the University of Michigan's law and business schools.
Ackman had announced his gamble on Valeant in March, after quietly
collecting a 5.7 percent stake at a cost of about $3.3 billion. That
position was a huge winner in the first half of 2015, but started to
falter in recent weeks, and was pummeled after the report from
Citron.
Ackman's tendency to stick with bets that are beaten up by the
markets has hurt him on occasion in the past, including in losing
bets on J.C.Penney, but his fund rarely loses money. The last two
times Pershing Square sunk into the red were in 2011, down 1.1
percent, and 2008, down 13 percent.
The gamble against Herbalife, which he has accused of being a fraud,
is hurting Ackman as its stock is up about 48 percent this year.
Herbalife has vehemently denied Ackman's allegations that it is
running a pyramid scheme.
(additional reporting by Jennifer Ablan, Michael Flaherty and
Rodrigo Campos in New York.; Editing by Carmel Crimmins, Richard
Valdmanis, Nick Zieminski and Bernard Orr)
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