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Speaker 1: Global business news twenty four hours a day at Bloomberg

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Speaker 1: This is a Bloomberg Business Flash and I'm Karin Moscow.

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Speaker 1: this morning, with stock still near their highest levels of

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Speaker 1: the year, as investors consider the capacity of central banks

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Speaker 1: to boost global growth. We checked the markets every fifteen

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Speaker 1: minutes throughout the trading day on Bloomberg SNP EMNY futures

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Speaker 1: down eleven and a half points down, E mini futures

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Speaker 1: down eighty seven and NAZDAC E mini futures down fourteen decks.

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Speaker 1: In Germany's down eight tenths percent and your treasury of

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Speaker 1: nine thirty seconds the yield one point nine two percent.

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Speaker 1: Nimex screwed oil down one percent or forty eight cents

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Speaker 1: to thirty six seventy of barrel. Comex goal down one

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Speaker 1: percent or twelve dollars thirty cents to twelve thirty three

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Speaker 1: and ounce the euro a dollar eleven eleven the end

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Speaker 1: one twelve point eight zero. That's a Bloomberg business flash.

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Speaker 1: Tom and Mike Karen, thanks so much. It is a

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Speaker 1: house of cards. We've avoided the hype and the hysteria

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Speaker 1: about Valiant, but unfortunately this morning it's nothing but an implosion.

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Speaker 1: The stock is down nineteen point five percent. The call

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Speaker 1: has just occurred. Joining us now Cynthia Coons, who has

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Speaker 1: followed his soap opera for Bloomberg and knows she has

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Speaker 1: her training from Penn State, where she was really a

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Speaker 1: major grizzled rec reporter for the Daily Collegian, and she

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Speaker 1: joins us right now. Cynthia, what did you learn in

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Speaker 1: the call about the immediate desperation of Valiant? Well, I

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Speaker 1: think what was most interesting about the call was how

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Speaker 1: much they had to focus on debt and what they

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Speaker 1: took exactly, and this was something totally different. They've always

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Speaker 1: said weren't compliance with our covenants and they've moved on.

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Speaker 1: It hasn't been a call where in this instance they

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Speaker 1: talked about debt. Probably thirty percent of the time, and

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Speaker 1: they came back to it, and one of the main

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Speaker 1: issues is they talked about they're going to pay down

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Speaker 1: more than one point seven billion of debt. In December

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Speaker 1: they had said they were going to pay down more

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Speaker 1: than two point two five billions, so they've reduced them. Okay, okay,

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Speaker 1: But the basic idea is, there's a trip point on

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Speaker 1: equity price where debt becomes immediate. Are they anywhere near

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Speaker 1: at fifty six dollars to share the cell sides trip

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Speaker 1: point where equity the equity debt blend doesn't mix. I'm

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Speaker 1: not sure about that metric precisely, but I do know

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Speaker 1: that they are running into trouble in terms of when

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Speaker 1: they file their ten K and what that means in

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Speaker 1: terms of whether or not bond holder. Now what we

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Speaker 1: know from having actually canvas the market on this issue,

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Speaker 1: we've been looking into this for quite some times. It's

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Speaker 1: unlikely to be a major problem for them. Usually bond

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Speaker 1: holders will give you a waiver and you can just

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Speaker 1: keep going, you pay, sort of working out. They're a

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Speaker 1: huge debt holders. It's in the debt market's interest to

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Speaker 1: not let them de fall on that issue. The near

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Speaker 1: reporting of Mr Ackman and the cell side and the

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Speaker 1: believers and the disbelievers. Is this a story about revenue dynamics,

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Speaker 1: no pricing in real mystery about unit growth at the

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Speaker 1: top line of the income statement? Or is this a

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Speaker 1: balance sheet soap opera about investment deals gone bad and

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Speaker 1: some plays. It's both. I think right now everyone's trying

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Speaker 1: to get their head around where the earning shortfalls are

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Speaker 1: and why the numbers have changed. So draft is that

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Speaker 1: on the income statement or on the balance sheet? That's

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Speaker 1: the income statement, But obviously everyone always knew that the

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Speaker 1: balance sheet was heavily levered, so it's just to flow through.

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Speaker 1: The balance sheet has always been secondary because the expectation

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Speaker 1: has been that they've had these revenue levers that now

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Speaker 1: it's unclear why they aren't able to pull them and

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Speaker 1: why so much has changed from January to now, And

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Speaker 1: so I think there's a lot of there's a lot

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Speaker 1: of concern that they had numbers in December reiterated in January.

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Speaker 1: Mike was gone. It was only two months and he's

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Speaker 1: come back and changed these numbers dramatically. Now a lot

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Speaker 1: has happened since he's been gone. But I think the

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Speaker 1: math ingnitude of what they're doing here with the numbers

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Speaker 1: has just really shocked investors. An analyst, and it's just

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Speaker 1: much worse than anyone like three years out, fourteen billions,

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Speaker 1: one billion on debt. It Uh. It seems to be

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Speaker 1: shocking to a lot of these analysts because Mike person

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Speaker 1: had some private calls with them, some of them, uh,

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Speaker 1: just a week or so and now they have gotten

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Speaker 1: a completely different story. What's up with that? Yeah, you

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Speaker 1: can hear the incredulity and their voice voices. It sounds

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Speaker 1: like when analysts get on there almost saying, hey, wait

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Speaker 1: a minute. Some of them their questions and the way

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Speaker 1: they're phrasing them, what are you gonna do about your

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Speaker 1: credibility now? And what happened with thy faccon and we

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Speaker 1: thought those sales were going through Walgreens and with thy

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Speaker 1: faccin is one of their is actually their biggest ring

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Speaker 1: at the moment. It's um it's a g I drug

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Speaker 1: that they acquired through salex last year. And and so

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Speaker 1: there's a lot of questions in terms of hey, waitit, hey, wait,

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Speaker 1: what you've been telling us up to now it just

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Speaker 1: doesn't feel like it's standing up. So you can just

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Speaker 1: feel the tone and I think we'll see it, and

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Speaker 1: we'll probably will see that in reflection reflected in their

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Speaker 1: notes and perhaps their price targets. I mean, some analysts

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Speaker 1: still have two hundred dollar price targets on this stock.

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Speaker 1: Good luck with that, Cynthia. When you look at the

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Speaker 1: ownership of this Mr Ackman, is the number two ownership

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Speaker 1: run kind of uh, you know the usual victims. Is

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Speaker 1: this a four all one K institutional holding or is

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Speaker 1: it all a set of holders who are in the

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Speaker 1: game and understand it's a game of speculation. No. I

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Speaker 1: think this is a widely held both stock and bond.

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Speaker 1: I think where this this company becomes a major factor

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Speaker 1: in in perhaps every anyone's throwing k is that if

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Speaker 1: you're someone's in a bond fund, those bonds that's gonna

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Speaker 1: there's gonna be a proportion of that that's in valiant

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Speaker 1: because it's such a big debt issuer. So I think

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Speaker 1: this stock, and also just the sheer size of it,

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Speaker 1: I think there are a lot of everyday investors who

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Speaker 1: would get really significantly hurt if this company doesn't pull

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Speaker 1: it off. And you know, they sort of hinted at

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Speaker 1: certain end games and someone asked the question, would you

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Speaker 1: consider breaking it up, and Mike Pearson said, look, if

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Speaker 1: things don't work out, we will have to consider other options.

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Speaker 1: But you know, we're not thinking about that yet. So

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Speaker 1: I mean they're they're they're not thinking about it, but

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Speaker 1: they're not avoiding it or dismissing it out of hand

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Speaker 1: as though they're not looking at the future as a

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Speaker 1: potential break up there. But that does still feel like

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Speaker 1: a ways off in terms of what they're talking about today. Well,

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Speaker 1: break up or sell part of the company. They issued

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Speaker 1: a lot of debt to pay for a lot of acquisitions.

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Speaker 1: Could they sell some of those acquisitions to raise money

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Speaker 1: to pay the debt? Sure, they're already flagging that. They

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Speaker 1: said there and talks to divest the non core assets.

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Speaker 1: They wouldn't really give enough clarity for us to know

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Speaker 1: what exactly those assets are. Perhaps as the calls still

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Speaker 1: going on, so perhaps they'll be more detail on that.

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Speaker 1: But that's the that's the real question. What do they sell?

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Speaker 1: I mean, Cynthia, good luck with this. I love the

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Speaker 1: headline Valiant taking Walgreen's cost of good sold through the

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Speaker 1: s G and A line. There's a cardinal rule in

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Speaker 1: in see if the investment when you get the headlines

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Speaker 1: like that you're in trouble. Who are their auditors? Are

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Speaker 1: they telling these guys what to do? P WC. I

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Speaker 1: believe is there auditors? But these numbers are not audited

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Speaker 1: right now, that's the other big question. Markets. They are

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Speaker 1: releasing on audited numbers for the think of giving the

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Speaker 1: market update because it has been a while that work

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Speaker 1: wants it. But um, but then if you read the

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Speaker 1: risk factors and the release and these are on audited numbers,

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Speaker 1: they could be subject to change. So we've got to

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Speaker 1: get you off the radio, Cynthia, because the stocks down

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Speaker 1: two points since you open your mouth. That's a bad thing.

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Speaker 1: Cynthia Couse, thank you so much, greatly appreciate it, really

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Speaker 1: appreciate her coming off the call. She is with Bloomberg

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Speaker 1: News with just terrific service. Us studying uh, this soap

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Speaker 1: opera called Valiant. When you get the markets open Bloomberg Surveillance,

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Speaker 1: we're kind of get out of the opening bell. Brought

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