Blogs & Comment

Winners & Losers: Valeant unseats RBC, Toshiba loses its head

Irritable bowel syndrome never had so many fans on Bay Street

 Valeant Pharmaceuticals

Sometimes bigger is better

Valeant headquarters

The biggest company in Canada by market cap on the TSX—an admittedly capricious metric—is now Valeant Pharmaceuticals, which surpassed the Royal Bank of Canada this week. As of Thursday, Valeant was worth $113.09 billion, compared to $108.23 billion for RBC. The drug company’s stock surged after the release of second-quarter earnings that beat analysts’ expectations. RBC, meanwhile, is down about 6.5% this year as a result of a weak Canadian economy and a slowdown in consumer lending. Valeant is an acquisition machine, snapping up small and mid-sized pharmaceutical firms. It’s done 11 deals in the past 12 months, including the $11.1 billion purchase of Salix Pharmaceuticals. Not every bid works out, as the failed effort to buy Botox-maker Allergan last year proves. Allergan has in fact been making its own acquisitions of late, such as the $2.1 billion purchase of a company that makes a shot to dissolve the fat in double-chins. (Side effects include facial muscle weakness and “asymmetric smile,” but hey no more double-chin.) Valeant and Allergan are also going to head-to-head with rival drugs to treat IBS-D, an acronym best left unpacked but which convention dictates we must spell out: irritable bowel syndrome with diarrhea. The looming question around Valeant is how many more promising drug developers it can acquire, but the company believes there are plenty of opportunities owing to the human body’s endless capacity for developing illnesses, ailments, maladies, and generally decaying, making life appear a cruel joke.

 Toshiba Corp.

Gone in 30 seconds

Toshiba CEO Hisao Tanaka

The Japanese conglomerate’s CEO and seven other executives resigned after an independent report revealed a systemic effort to inflate profits. At a press conference this week, CEO Hisao Tanaka kept his head bowed for almost 30 seconds, an appropriate amount of time to express shame and contrition for overstating profits by $1.2 billion and misleading investors since 2008. Various parts of Toshiba’s business, which includes everything from nuclear reactors to personal computers, were underperforming. Managers continued to set unrealistically high targets, and subordinates submitted fake results to meet them, the report found. Tanaka didn’t challenge the findings of the report, but did shirk away from culpability. “It’s not my understanding that I gave orders for improper accounting,” he said, in a typical example of executive obfuscation. The accounting scandal follows similar malfeasance at Japanese company Olympus Corp. in 2011, which was revealed only when its own CEO blew the whistle. Commentators say the scandals stem from a lack of transparency and corporate governance standards at major Japanese firms that are more common in other parts of the world. The culture at Toshiba also didn’t allow for subordinates to challenge or question their bosses. The scandal comes at a bad time for Japanese business as a whole, as prime minister Shinzo Abe is trying to drum up global investor confidence by touting improved corporate governance standards. It’s not yet clear what penalties, if any, Tanaka and other executives could face, but we wouldn’t rule out the possibility of more shame-bowing in the near future.