Tuesday was a good one for Bill Ackman’s Pershing Square Capital Management. Its most high-profile long holding surged in price, while its best-known short fell sharply.
First of all, shares of Valeant Pharmaceuticals International surged 33 percent on Tuesday, after the embattled drug maker confirmed reports that it may sell its Salix unit.
“We are currently in discussions with third parties for various divestitures including but not limited to Salix,” the company said in a press release. “The discussions may or may not lead to a definitive agreement. Valeant does not intend to comment further on market speculation or disclose any developments unless and until it otherwise deems further disclosure is appropriate or required.”
In any case, CNBC reported that a deal, valued at $10 billion, could include $8.5 billion in cash plus future royalty payments for Valeant. The company is reportedly looking to sell assets to pay down its considerable amount of debt.
This news comes one day after the stock dropped more than 12 percent, after Bloomberg reported that former Valeant CEO Michael Pearson and former CFO Howard Schiller are the targets of an accounting fraud investigation. At the end of the second quarter, Pershing Square was the largest shareholder of Valeant.
Meanwhile, shares of Herbalife fell about 2.6 percent on Tuesday, and then another 3 percent in after-hours trading. That day, the controversial multi-level marketer of nutrition and health products reported earnings per share that beat expectations and revenues that were in line with estimates. But investors seemed spooked by the company’s announcement that effective June 1, 2017, chief operating officer Richard Goudis will succeed Michael Johnson as CEO. Johnson will become executive chairman.
Ackman, of course, has had a big, celebrated negative position on the stock. Carl Icahn, who has the biggest long position on the stock, said in a statement he would “applaud” Johnson for doing “a superb job,” adding, “I am glad he intends to stay meaningfully involved in the company and I fully support the Board’s choice of Rich Goudis becoming CEO while Michael remains actively engaged.”
Ackman’s Pershing Square Holdings, his publicly traded hedge fund, is still having a very tough year. It fell 4.5 percent in October and is down 22.5 percent for the year to date.
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Hedge funds expect activism to be a pretty strong strategy over the next 12 months. Nearly one-third of 37 hedge funds recently surveyed expect activist activity to pick up, nearly three times as many who expect a decline, while a majority — 56 percent — expect volume to remain the same, according to a report published by law firm Schulte Roth & Zabel, in association with Activist Insight and FTI Consulting. However, the activists expect most of the action to center around the smallest companies. According to the survey, 58 percent expect a lot of activity among micro-cap stocks, while 67 percent anticipate a lot of activity among small-cap companies. When it comes to raising capital, activists are not as optimistic about fund-raising as last year. According to the report, in last year’s survey, more than half of activists said they were raising some money, while 30 percent said they were raising a lot of capital. However, this year just 21 percent expect to boost their assets by 75 percent to 100 percent over the next 12 months, while only 3 percent figure to lift assets by 50 percent to 75 percent.
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Activist hedge fund firm ValueAct Capital Management made significant changes to two of its core holdings. The firm, headed by Jeffrey Ubben, bought 2.9 million shares of Trinity Industries, boosting its stake in the maker of transportation, construction, and industrial products to 9.8 percent. In a separate regulatory filing, ValueAct disclosed it sold 4.3 million shares of Allison Transmission Holdings, reducing its stake in the maker of fully automatic transmissions to 9 percent.
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UBS cut its price target on hedge fund favorite AutoNation, from $47 to $43, after the largest automotive retailer in the United States reported sales that came in below expectations and higher-than-expected selling, general, and administrative expenses. The investment bank also maintained its sell rating on the stock, citing margin pressure on both new and used cars. The stock fell more than 2 percent on Tuesday and is down about 7 percent since AutoNation reported its disappointing results before Friday’s trading session. The stock is also now down 28 percent for the year.
Entities of Eddie Lampert’s ESL Investments were the second largest shareholder as of the end of June. New York-based Eminence Capital was the fourth-largest shareholder, while Jana Partners was the seventh largest investor.
