Acquisition Battle between Valeant And Allergan, Finance Term Paper
Paper
Choose one
1. Target a public company as an activist hedge fund.
List the reasons why you think the stock is under-performing and how the company should improve its performance.
2. Target a public company as an activist short seller.
List the reasons why you think the stock price should fall.
3. Follow and summarize a battle between a public company and an activist hedge fund/short seller.
Include the timeline, the reasons of being targeted, company response, stock prices movement, results and aftermath etc.
Paper: Hedge Fund Activism
Overview:
- The Hedge Fund as Activist (Links to an external site.)
- The activist revolution - JP Morgan (Links to an external site.)
- An annual review of trends in shareholder activism 2017 (Links to an external site.)
Events:
- Starboard attacks Darden (Links to an external site.)
- Darden_2014.pdf Darden_201409.pdf
- Elliott's Paul Singer targets Arconic (Links to an external site.)
- Elliott and Paul Singer (Links to an external site.)
- Ousted Arconic CEO Sent Vague Threat, Soccer Ball to Singer (Links to an external site.)
- P&G vs. Nelson Peltz: The Most-Expensive Shareholder War Ever (Links to an external site.)
- Trians-Introductory-PG-Presentation-3.pdf
Collection of activist hedge fund presentations:
- Hedge Fund Presentations By World's Renowned Activist Investors (Links to an external site.)
How to present like an activist:
- Top Five Things To Put In Your Hedge Fund Presentation (Links to an external site.)
- How to give an AWESOME activist investor presentation (Links to an external site.)
Paper: Short sale
Short sale
squeeze: VOW.F (Links to an external site.)
Books
1. Fooling Some of the People All of the Time: A Long Short (and Now Complete) Story. (Links to an external site.) By David Einhorn.
2. The Most Dangerous Trade: How Short Sellers Uncover Fraud, Keep Markets Honest, and Make and Lose Billions. (Links to an external site.) By Richard Teitelbaum.
3. Confidence Game: How Hedge Fund Manager Bill Ackman Called Wall Street's Bluff. (Links to an external site.) By Christine S. Richard.
The resilience of an activist short-seller who fought with almost everyone for years, alone.
4. The Art of Short Selling. (Links to an external site.) by Kathryn F. Staley.
A good introduction
News/Commentaries
Let activist shorts speak first
- "Activist" Short Selling. (Links to an external site.)
- Activist short-seller Carson Block explains how he picks his targets. (Links to an external site.)
On the controversial role of activist short-selling
- We must not sell short the value of shortsellers. (Links to an external site.)
- Short Sellers Need to Go Public. (Links to an external site.)
- 'I think we're helping people': Activist short seller Carson Block on making the market a better place (Links to an external site.).
- The Loneliness of the ShortSeller. (Links to an external site.)
- In praise of short sellers (Links to an external site.). (Or more accurately, "In praise of activist short-sellers." BTW someone disagrees: The limits of activist short selling. (Links to an external site.))
- Is It Wrong To Take A Position In A Stock And Then Write About It On Seeking Alpha? (Links to an external site.)
- Disclosure by ShortSellers Would Improve Market Clarity. (Links to an external site.)
- Short sellers target China, this time from the shadows. (Links to an external site.) (Activist short-selling is controversial in general, and dangerous in China.)
- Death of the Hedge Fund Short Seller. (Links to an external site.)
- How The Big Players Manipulate The Stock Market. (Links to an external site.) (Here is the other side of the story.)
- SEC Enforcement Actions and Issuer Litigation in the Context of a “Short Attack.” (Links to an external site.)
- Sheared by the Shorts: How Short Sellers Fleece Investors. (Links to an external site.)
- What the SEC Really Did on Short Selling? (Links to an external site.) (How higher-order beliefs create panic: "When an irrational panic is fueled by false rumors that investors believe must be acted on immediately — lest everyone else get out first — market integrity is threatened.")
- In this Market, Short Sellers who Cannot CAUSE a Stock to Crash are Cannon Fodder (Links to an external site.).
On several well-known activist short-selling cases
Herbalife (from 2012)
- Bruised, Herbalife Swings Back at an Accuser (Links to an external site.). (See how targeted companies fight back.)
- Ackman, Herbalife and Celebrity ShortSellers. (Links to an external site.)
- After Big Bet, Hedge Fund Pulls the Levers of Power. (Links to an external site.)
- Bill Ackman and His Hedge Fund, Betting Big. (Links to an external site.)
- Bill Ackman Just Accused Carl Icahn of Stock Fraud. (Links to an external site.) (See how activist shorts fight with activist longs.)
- FTC moves against Herbalife, but leaves a question: Why is this company still allowed in business? (Links to an external site.) (It seems that history is on the "short" side once again.) Also see this: The Activist and Herbalife: Just Maybe Ackman’s Right. (Links to an external site.)
- Legal cost of short (Links to an external site.)selling (Links to an external site.)
- Who lost? (Links to an external site.)
- The winner is ? (Links to an external site.)
- The Netflix movie (Links to an external site.)
Valeant (from 2015)
- Analysts (Finally) Run Away From Valeant. (Links to an external site.) (AKA my second dissertation chapter. Stay-tuned.)
- Valeant Pharmaceuticals CEO Joe Papa open to selling core assets if price is right. (Links to an external site.) (The real consequences of activist short-selling. Stay-tuned.)
- Activist William Ackman, Valeant Investor, Tries Life as an Inside Man. (Links to an external site.)
- Ackman Tries to Calm Investors on Valeant. (Links to an external site.)
- Funds Face Off on Valeant (Links to an external site.).
- The ‘Short’ Who Sank Valeant Stock. (Links to an external site.)
- He who would Valeant be. (Links to an external site.) (As this The Economist article comments: America hadn’t had a spectacular corporate disaster since Lehman Brothers in 2008.)
- George Soros' idea about how markets work explains what happened to Valeant last week. (Links to an external site.)
- Valeant shares plunge on shortseller scrutiny of pharmacy revenue. (Links to an external site.) (The roles of activist short-sellers: providing information, creating fear, and attracting market attention by being a catalyst.)
- Andrew Left: Did Valeant Pay Philidor 'Hush Money'? (Links to an external site.) (It would be very interesting to know whether and how activist short-selling affects targets' reputation, for example, their employees' morale.)
Overstock (from 2004)
- A company’s battle to show it was a victim of abusive shortselling (Links to an external site.). (Overstock.com is a classic case regarding short-selling manipulations. The previous The Economist article can be found here: Getting to the naked truth (Links to an external site.). The other side of the story can be found here: Short-seller: Lawsuits compromise analyst research (Links to an external site.))
On activist short-selling opportunities
- Activist Short-Seller Glaucus Says It’s Starting to Target Japan. (Links to an external site.) (Asian markets, Japan and China in particular, should be a fertile land for activist shorts.) Also see this: Activist short sellers shaking up Japan's stock market (Links to an external site.).
- Hedge fund claims 90% downside potential at Asanko Gold (Links to an external site.). (Made in Toronto! Also I like the author says this: "in the grand tradition of short sellers, the hedge fund published its report on the company on a public website, allowing anyone to download it.")
- Soros bet on fall in Deutsche Bank shares after Brexit vote (Links to an external site.). (Soros, the most prominent activist short-seller.)
- Accounting Choices Blur Profit Picture (Links to an external site.). (Detours from GAAP could be opportunities for short-sellers.)
- How to Profit From a Muni Bond Crisis (Links to an external site.). (Yes you can short non-equity market as well.)
On the trend of activist short-selling and firms' responses
- Should companies expect an increase in short-selling activism in Canada? (Links to an external site.)
- Activists' Bearish Bets Fall Short. (Links to an external site.)
- Current trends in short selling 'activism': boards and management are advised to consider preparing themselves against an attack. (Links to an external site.)
- Anecdotal evidence suggests companies are increasingly coming to fear activist short-sellers (Links to an external site.).
- Activist short-selling may be on the rise. (Links to an external site.)
- Target groups find ways to fight short sellers. (Links to an external site.)
- HK analyst eviction fuels fears that negative research being muffled. (Links to an external site.) (This sounds unbelievable because it is. But soon the CFO resigned: PAX Global CFO resigns after analyst briefing row (Links to an external site.)). Not only HK firms, but also the HK SEC: Hong Kong negative research crackdown fuels free speech fears. (Links to an external site.) Here is Andrew Left's interview on CNBC (Links to an external site.) about the manipulation case on Evergrande.
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Acquisition Battle between Valeant And Allergan
Student’s Name
Institutional Affiliation
Acquisition Battle between Valeant and Allergan
Activist investors have become more common in the business world today, and this is a dangerous trend because these individuals force the corporations to trim their payrolls and downsize the research operations, which sometimes result in the collapse an organization (Reed & Storrud-Barnes, 2015). Hedge fund activists usually make a huge investment in a given company, which allows them to participate in the firm and the management decision-making process. They usually target big companies and spend huge amounts of funds to purchase big chunks of a firm’s stock and later use their company ownership to influence the board and management to cut costs, return money to investors or find and acquire other companies through mergers (Reed & Storrud-Barnes, 2015). Activist investors prefer making investments in companies with various vulnerabilities such as firms that lack proper incentive strategy and insufficient cash flow. Some of the renowned hedge fund activists include Carl Icahn, who opened two strong hedge funds and made an activist investment in some of the largest companies such as Blockbuster and Time Warner, William Ackman, who used hedge funds to attack a company called Valeant and Loeb, Smith and Einhorn who have attacked various companies across the United States of America (USA) (Reed & Storrud-Barnes, 2015). The current paper discusses one of the activist hedge fund attacks that Bill Ackman planned to perpetuate against Allergen Inc. in collaboration with Valeant Inc.
Allergan Inc. is a global pharmaceutical firm focused on the production and sale of eye care, anesthetics, obesity, neurology, medical dermatology, and breast enhancement among others. In 2014, one of the renowned hedge fund activists, Bill Ackman colluded with Valeant Inc, another pharmaceutical company to force Allergan into a merger using hedge fund strategy (Pickering et al., 2014). Allergan and Valeant are both pharmaceutical companies, but their operations run on different principles and are on different paths. Valeant used the merger strategy to grow its business, where it acquires other firms, cuts their costs and scrapes their research and development (R&D) strategies. Since 2008 when Michael Pearson became the company’s CEO, the company has acquired several companies and systematically scrapped their R&Ds, which is the view that there is waste (Fisch, 2015). By acquiring these companies, Valeant accumulates huge debts. Thus, the company prefers purchasing company with strong cash flows to help the company repay its debts. Allergan is one of the biggest pharmaceutical companies with strong cash flow and highly committed to R&D as well as internal organic growth. Hence, the company presented a huge merger opportunity for Valeant. Acquisition of Allergan by Valeant would help the latter to service its massive debts (Fisch, 2015). Consequently, Valeant entered into a deal with Bill Ackman, who was one of the main shareholders in Allergan and whom they would use to acquire Allergan forcefully. Besides, Allergan was a perfect targ...
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