Ackman backs Valeant CEO after reports of earlier doubts cause shares to plunge

MONTREAL – Activist investor Bill Ackman says he still has in faith Valeant’s CEO, hours after investors apparently reacted to publication of his earlier doubts by sending the company’s stock to a more than two-year low.

In a letter Thursday to Michael Pearson, the fund manager of Pershing Square Capital — Valeant’s second-largest shareholder — said he has strong criticism of the Quebec drug company’s communication strategy.

“(But) You and the board should not interpret this as a negative reflection on my view of you as the CEO of the company,” he wrote.

Ackman says he understands Valeant’s lawyers and board may have a different view about what can be said because of the regulatory scrutiny.

The U.S. Senate has launched an investigation into drug pricing of companies like Valeant. The company has also received multiple subpoenas from federal prosecutors.

“You are one of the most shareholder-oriented CEOs I know. You have assured me that you and the rest of the board are considering any and all alternatives that would benefit shareholders and other stakeholders. That is very comforting to us.”

The show of support follows a Wall Street Journal report which said Ackman told Valeant’s lead director, Robert Ingram, that Pearson might have to go and considered dumping his then entire US$3.8-billion investment in Valeant.

“If Mike [Pearson] hides in the bunker on this, he can’t be CEO,” Ackman said, adding that Pearson doesn’t have the skills to repair the company’s reputation, including testifying before Congress.

Ackman’s comments were made before he purchased even more shares in Valeant after Pearson reasssured him there was no fraud at its mail-order pharmacy partner, Philidor Rx Services. They also preceded a four-hour conference call in which Ackman defended Pearson and said the company is undervalued.

Shares of Valeant (TSX:VRX) tumbled to a low of $96.64 on the Toronto Stock Exchange in intraday trading Thursday, the lowest level since the summer of 2013, before recovering to $103.37 at the close, down $17.83 or almost 15 per cent on the TSX but still well below its 52-week high of $347.84.

Ingram said in an email that Pearson continues to have the full confidence of Valeant’s board.

“Despite recent market volatility that has impacted our stock price, Valeant’s core business remains strong and is well positioned for growth,” he said.

Alex Arfaei of BMO Capital Markets said he finds Ackman’s original comments puzzling given his recent vocal support.

“Moreover, we believe that virtually all Valeant investors recognize that Mr. Pearson has been the chief architect of Valeant’s strategy since he became CEO in 2008, and they attribute much of the company’s success since then to him personally,” he wrote in a report. “The prospect of not having Mr. Pearson at the helm is probably further eroding investor confidence, which probably explains today’s weakness.”

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