WEBVTT - Hass: Valeant is under pressure

0:00:02.440 --> 0:00:05.840
<v Speaker 1>Global business news twenty four hours a day. If Bloomberg

0:00:05.880 --> 0:00:08.959
<v Speaker 1>dot Com, the radio plus mobile last and on your radio,

0:00:09.240 --> 0:00:13.480
<v Speaker 1>this is a Bloomberg Business Flash and I'm Karen Moscow.

0:00:13.640 --> 0:00:18.360
<v Speaker 1>Valion Pharmaceuticals International is at one point seven percent right now.

0:00:18.400 --> 0:00:21.520
<v Speaker 1>It's chief executive, Mike Pearson will step down following a

0:00:21.560 --> 0:00:24.200
<v Speaker 1>series of missteps and criticism at the drug maker that

0:00:24.280 --> 0:00:28.160
<v Speaker 1>culminated in a drop in the company shares last week.

0:00:28.520 --> 0:00:31.960
<v Speaker 1>Stocks meanwhile little change. They are near the highest levels

0:00:31.960 --> 0:00:34.840
<v Speaker 1>this year amid deal activity, while investors assess a rally

0:00:34.880 --> 0:00:37.120
<v Speaker 1>that turned equity is positive for the year. We check

0:00:37.200 --> 0:00:39.640
<v Speaker 1>the markets every fifteen minutes throughout the trading day on

0:00:39.680 --> 0:00:42.240
<v Speaker 1>Bloomberg the S and P five hundred again it'll change

0:00:42.240 --> 0:00:45.280
<v Speaker 1>at nine. The Dow Jones Industrial Average down to point

0:00:45.320 --> 0:00:48.320
<v Speaker 1>to seventeen thousand, six hundred, and the NASDAC is up

0:00:48.320 --> 0:00:51.000
<v Speaker 1>to ten per center nine points to forty eight oh

0:00:51.000 --> 0:00:53.840
<v Speaker 1>five ten. Your treasury is down thirteen thirty seconds. The

0:00:53.920 --> 0:00:56.360
<v Speaker 1>yield one point nine two percent yield on the two

0:00:56.440 --> 0:00:59.400
<v Speaker 1>year point eight five percent. Nimex screwd oil of one

0:00:59.400 --> 0:01:01.680
<v Speaker 1>point two per center forty six cents to thirty nine

0:01:01.800 --> 0:01:04.440
<v Speaker 1>ninety A barrel called my school down seven tenths per

0:01:04.440 --> 0:01:08.039
<v Speaker 1>cent or eight dollars fifty cents at twelve ounce, the

0:01:08.080 --> 0:01:10.560
<v Speaker 1>euro at dollar twelve sixty seven, and the yen is

0:01:10.560 --> 0:01:13.320
<v Speaker 1>at one eleven point eight two. And that's a Bloomberg

0:01:13.319 --> 0:01:16.600
<v Speaker 1>business flash, Tom and Mike Karen, thanks so much Bloomberg

0:01:16.640 --> 0:01:19.800
<v Speaker 1>Surveillance this morning bunch of by Interactive Brokers. They offered

0:01:19.880 --> 0:01:24.360
<v Speaker 1>direct market access to stocks, two options to futures for

0:01:24.680 --> 0:01:27.600
<v Speaker 1>X bonds and ets, and over one of the market

0:01:27.640 --> 0:01:32.360
<v Speaker 1>centers in twenty four countries from a single account. Visit

0:01:32.840 --> 0:01:36.280
<v Speaker 1>I v k R dot com slash trade worldwide, I

0:01:36.400 --> 0:01:40.560
<v Speaker 1>b k R dot com slash Trade Worldwide. We'll get

0:01:40.560 --> 0:01:42.240
<v Speaker 1>the valiant in a minute. Here we've got a good

0:01:42.280 --> 0:01:44.800
<v Speaker 1>guest on that, uh coming up. But right now, three

0:01:44.880 --> 0:01:48.240
<v Speaker 1>quick questions. John Butler joining us from Bloomberg Intelligence. As

0:01:48.240 --> 0:01:52.400
<v Speaker 1>we look at Apple, I am dismayed, John Butler at

0:01:52.480 --> 0:01:56.280
<v Speaker 1>the idea of unit focus in product focused by the

0:01:56.320 --> 0:01:59.080
<v Speaker 1>media and even to an extent, the street. To meet

0:01:59.120 --> 0:02:03.520
<v Speaker 1>Apple's all always been about profitability. This new phone they're

0:02:03.520 --> 0:02:07.320
<v Speaker 1>coming out with, isn't it all like older stuff where

0:02:07.320 --> 0:02:11.040
<v Speaker 1>it's immediately profitable to the company. It is, Tom, I

0:02:11.080 --> 0:02:15.720
<v Speaker 1>mean that's a great point. Today's UH introduction of the

0:02:15.720 --> 0:02:21.240
<v Speaker 1>iPhone se UH is really Apple's first attempt, in my view,

0:02:21.400 --> 0:02:24.960
<v Speaker 1>at a product line extension of the iPhone. So they're

0:02:24.960 --> 0:02:28.560
<v Speaker 1>taking the latest specs from the iPhone Sex and the

0:02:28.680 --> 0:02:32.880
<v Speaker 1>Success Plus and they are pouring into the older chassis

0:02:32.919 --> 0:02:38.040
<v Speaker 1>the iPhone five. And so what the appeal of that is.

0:02:38.120 --> 0:02:41.239
<v Speaker 1>I think a lot of people and estimated six of

0:02:41.320 --> 0:02:45.440
<v Speaker 1>the installed base are hanging onto phones that are don't

0:02:45.480 --> 0:02:48.320
<v Speaker 1>want to spend money or older. I think they want

0:02:48.360 --> 0:02:51.640
<v Speaker 1>a smaller form factor and I think a smaller form

0:02:51.760 --> 0:02:55.239
<v Speaker 1>factor a five S with updated specs is going to

0:02:55.360 --> 0:02:57.640
<v Speaker 1>be a winner. That's my sense. This is the first

0:02:57.639 --> 0:03:00.520
<v Speaker 1>time they've done sort of filling in of hole in

0:03:00.560 --> 0:03:04.679
<v Speaker 1>their product line as opposed to launching something completely new. Yeah,

0:03:04.800 --> 0:03:07.000
<v Speaker 1>but think about it, Mike. In the past, what Apple

0:03:07.000 --> 0:03:10.440
<v Speaker 1>would always do what lower price points is they would

0:03:10.720 --> 0:03:13.080
<v Speaker 1>they would sell the old ones. So people didn't have

0:03:13.120 --> 0:03:16.480
<v Speaker 1>an opportunity to have a smaller form factor phone, and

0:03:16.520 --> 0:03:20.280
<v Speaker 1>believe me, there's demand out there for that. They didn't

0:03:20.360 --> 0:03:23.359
<v Speaker 1>have a chance to buy that phone with updated specs.

0:03:23.560 --> 0:03:26.880
<v Speaker 1>And so even though we're not getting a brand new camera,

0:03:27.080 --> 0:03:30.960
<v Speaker 1>in terms of new technology or a brand new series

0:03:31.040 --> 0:03:33.840
<v Speaker 1>or operating system. It's gonna be on part of the

0:03:33.919 --> 0:03:38.440
<v Speaker 1>latest technology on the more, a Samsung killer in seven

0:03:38.480 --> 0:03:41.520
<v Speaker 1>eighths of the world that can't afford six eight, nine

0:03:41.560 --> 0:03:45.480
<v Speaker 1>hundred dollars for the new whizbang product. Michael mckeees buying

0:03:45.520 --> 0:03:51.560
<v Speaker 1>for his family over in Fifth Avenue the West Side.

0:03:51.600 --> 0:03:54.600
<v Speaker 1>I'll make no comment on that, but is it a

0:03:54.680 --> 0:03:57.920
<v Speaker 1>Samsung killer? Well, you know what brings them into a

0:03:58.000 --> 0:04:00.600
<v Speaker 1>part of the market really where they've never been in before,

0:04:00.760 --> 0:04:03.080
<v Speaker 1>which is that mid I don't know the price yet,

0:04:03.120 --> 0:04:05.520
<v Speaker 1>but I imagine it's going to be a mid priced phone.

0:04:06.240 --> 0:04:08.920
<v Speaker 1>Samsung plays at the high end, the mid range, and

0:04:09.040 --> 0:04:12.400
<v Speaker 1>the low end, and so this will expand Apple's reach

0:04:12.480 --> 0:04:16.760
<v Speaker 1>from the premium only segment, hopefully down more into the

0:04:16.839 --> 0:04:19.880
<v Speaker 1>mid range with an updated device. Okay, John, we gotta

0:04:19.920 --> 0:04:22.360
<v Speaker 1>leave it there. The new slowest morning is extraordinary. Thank

0:04:22.360 --> 0:04:24.320
<v Speaker 1>you for the two brief of his It will get

0:04:24.320 --> 0:04:28.280
<v Speaker 1>you back when McKee has to buy his six plus

0:04:28.400 --> 0:04:31.760
<v Speaker 1>right now. Um, there's any number of people working on

0:04:32.839 --> 0:04:37.239
<v Speaker 1>Valiant this morning. For Zach Tracer is with Bloomberg News

0:04:37.240 --> 0:04:39.680
<v Speaker 1>and he joins us, uh, now, we're only having a

0:04:39.760 --> 0:04:42.080
<v Speaker 1>mom because Duke is doing pretty well in the brackets

0:04:42.120 --> 0:04:45.359
<v Speaker 1>and uh, we figure zach is looking forward to the

0:04:45.400 --> 0:04:50.320
<v Speaker 1>Duke Oregon. Zachary, good morning. What is the distinctive feature

0:04:50.400 --> 0:04:53.200
<v Speaker 1>that you, Cynthia Coons and others are looking for right now?

0:04:53.360 --> 0:04:57.159
<v Speaker 1>What's the information you need from Valiant? You know, we're

0:04:57.160 --> 0:04:59.720
<v Speaker 1>just trying to understand, you know, what is really going

0:04:59.760 --> 0:05:02.720
<v Speaker 1>on here. We saw, you know, Valiants say, you know,

0:05:02.760 --> 0:05:06.320
<v Speaker 1>the chief financial officer, um, you know, basically being asked

0:05:06.400 --> 0:05:09.040
<v Speaker 1>the former chief financial officer being asked to resign. Um,

0:05:09.080 --> 0:05:12.240
<v Speaker 1>the CEO leaving as well as soon as the successor

0:05:12.320 --> 0:05:16.239
<v Speaker 1>is named. Um, you know, material weaknesses in internal controls.

0:05:16.240 --> 0:05:18.160
<v Speaker 1>There's a lot of trouble for Valiant this morning and

0:05:18.200 --> 0:05:20.680
<v Speaker 1>trying to understand, Um, you know what it means for investors.

0:05:21.200 --> 0:05:24.520
<v Speaker 1>Do we know when we might find out more? You know,

0:05:24.560 --> 0:05:27.880
<v Speaker 1>we're obviously working on it over here. UM. You know

0:05:27.880 --> 0:05:30.240
<v Speaker 1>the company has said, you know, they've asked for additional

0:05:30.279 --> 0:05:33.320
<v Speaker 1>time to file their you know, their annual report. UM,

0:05:33.480 --> 0:05:35.359
<v Speaker 1>so it could be you know, a few more weeks

0:05:35.360 --> 0:05:38.320
<v Speaker 1>at least, Zack, thank you so much, and until thank

0:05:38.360 --> 0:05:41.360
<v Speaker 1>you to Cynthia Coon's for helping us out earlier. Mike

0:05:41.360 --> 0:05:44.279
<v Speaker 1>bringing our next guest. Gerald has as a portfolio manager

0:05:44.279 --> 0:05:47.080
<v Speaker 1>a light Water Partners, and they took a short position

0:05:47.120 --> 0:05:49.919
<v Speaker 1>on Valiant when it was the third largest company in

0:05:49.960 --> 0:05:53.120
<v Speaker 1>the Toronto Stock Exchange back in July at two thousand fifteen,

0:05:53.600 --> 0:05:56.120
<v Speaker 1>saying they saw a number of red flags. Mr Hu

0:05:56.720 --> 0:06:00.360
<v Speaker 1>joins us. Now, Um, what did you let me put

0:06:00.360 --> 0:06:03.159
<v Speaker 1>it this way? What we're seeing now from Valiant is

0:06:03.200 --> 0:06:07.080
<v Speaker 1>that what you saw in two thousand fifteen. Well, the

0:06:07.120 --> 0:06:09.360
<v Speaker 1>first thing that we saw was we were very concerned

0:06:09.360 --> 0:06:11.760
<v Speaker 1>about their debt levels. So when they completed the Salex

0:06:11.800 --> 0:06:14.840
<v Speaker 1>acquisition in the spring and early summer, their debt to

0:06:14.920 --> 0:06:18.279
<v Speaker 1>EVE at DA ratio was at six times. So on

0:06:18.360 --> 0:06:21.039
<v Speaker 1>the numbers that we look at the last quarter that

0:06:21.080 --> 0:06:24.000
<v Speaker 1>came out, that numbers actually risen to about six point

0:06:24.040 --> 0:06:27.000
<v Speaker 1>eight times. So they haven't addressed that. That issue something

0:06:27.040 --> 0:06:29.080
<v Speaker 1>that they're clearly going to have to address going forward.

0:06:29.520 --> 0:06:33.000
<v Speaker 1>But the other is that we just generally hate serial acquirers,

0:06:33.040 --> 0:06:36.480
<v Speaker 1>and Valiant was the poster boy for serial acquirers, and

0:06:36.560 --> 0:06:40.359
<v Speaker 1>so um our view is, let's uh, let's see what

0:06:40.400 --> 0:06:45.400
<v Speaker 1>they've actually got. Um without the young acquisitions, their goodwill,

0:06:45.920 --> 0:06:51.440
<v Speaker 1>bad will, their other intangible assets is a large number.

0:06:51.760 --> 0:06:55.559
<v Speaker 1>How do you translate the quality of a big hunk

0:06:55.600 --> 0:06:59.440
<v Speaker 1>of their balance sheet at this moment. Well, that's a

0:06:59.520 --> 0:07:02.800
<v Speaker 1>very difficult proposition. And agree why we don't like serial

0:07:02.880 --> 0:07:06.040
<v Speaker 1>acquires because you can hide so much with the accounting.

0:07:06.080 --> 0:07:08.440
<v Speaker 1>You really have to take a lot on face value

0:07:08.480 --> 0:07:12.560
<v Speaker 1>initially from the management, but eventually it takes a couple

0:07:12.560 --> 0:07:14.840
<v Speaker 1>of quarters for that to come out. You can actually

0:07:14.840 --> 0:07:16.480
<v Speaker 1>get a look under the hood and see what they've

0:07:16.480 --> 0:07:21.800
<v Speaker 1>really got there. Yeah, Mike, the goodwill and within intagibles

0:07:21.840 --> 0:07:24.680
<v Speaker 1>in this case, let's call it collegiately, bad Will has

0:07:24.720 --> 0:07:29.640
<v Speaker 1>gone from one point three billion to a published twenty

0:07:29.880 --> 0:07:33.680
<v Speaker 1>one billion. Let me if that's I believe. I've never

0:07:33.720 --> 0:07:40.000
<v Speaker 1>seen this one point for billion to twenty point six

0:07:40.280 --> 0:07:44.240
<v Speaker 1>billion dollars in five years. What will you? Can you

0:07:44.480 --> 0:07:48.880
<v Speaker 1>stay short this security at this time? Well, we've actually

0:07:48.880 --> 0:07:51.000
<v Speaker 1>gone to the sidelines. I mean, when the stock drops

0:07:51.200 --> 0:07:54.240
<v Speaker 1>UM in a day, you're a short seller. It's time

0:07:54.280 --> 0:07:59.520
<v Speaker 1>to move to which champagne did you buy? Well, it's

0:07:59.720 --> 0:08:02.600
<v Speaker 1>it's one of one of our shortholdings. So it's not

0:08:02.960 --> 0:08:05.679
<v Speaker 1>a huge position for us. But UM at this point,

0:08:05.760 --> 0:08:08.280
<v Speaker 1>or at that point, it wasn't but that's a that's

0:08:08.280 --> 0:08:10.480
<v Speaker 1>the downside of one of the short works very well

0:08:10.520 --> 0:08:12.720
<v Speaker 1>for you. It becomes less and less as a percentage

0:08:12.720 --> 0:08:15.920
<v Speaker 1>of your portfolio. But you know, it's nice to see

0:08:16.440 --> 0:08:20.040
<v Speaker 1>things coming through when you're when you're a hedge fund,

0:08:20.160 --> 0:08:21.840
<v Speaker 1>you know, when you're shorting of stock, you have to

0:08:21.880 --> 0:08:23.920
<v Speaker 1>get two things right. One is the thesis right, the

0:08:23.960 --> 0:08:26.920
<v Speaker 1>other is a timing right. And we were fortunate that

0:08:27.640 --> 0:08:30.400
<v Speaker 1>eventually it came through. In terms of Valiant, this is

0:08:30.440 --> 0:08:33.520
<v Speaker 1>a stock that has been up and down based on

0:08:33.720 --> 0:08:37.600
<v Speaker 1>newsflow ever since the first reports of trouble there. It's

0:08:37.640 --> 0:08:42.400
<v Speaker 1>up right now? Is that an error by investors? Can

0:08:42.440 --> 0:08:49.640
<v Speaker 1>this stock reclaim it's uh its value? Well, I'm not

0:08:49.679 --> 0:08:52.559
<v Speaker 1>really going to comment on that because, um, well, I

0:08:52.559 --> 0:08:54.959
<v Speaker 1>don't think it hits three fifty anytime soon in terms

0:08:55.000 --> 0:08:59.680
<v Speaker 1>of Canadian dollars. Um. But I think this stock became

0:08:59.760 --> 0:09:03.480
<v Speaker 1>an overcrowded trade on the short side after it hit

0:09:04.360 --> 0:09:06.640
<v Speaker 1>the way down, and so for us, we don't like

0:09:06.760 --> 0:09:08.880
<v Speaker 1>to participate in crowded trades, or at least be on

0:09:08.920 --> 0:09:11.080
<v Speaker 1>the same side of them, and so for us we

0:09:11.200 --> 0:09:13.000
<v Speaker 1>do it as a time to be on the sidelines.

0:09:13.040 --> 0:09:15.880
<v Speaker 1>And I think a lot of investors. We we'd actually

0:09:15.920 --> 0:09:19.440
<v Speaker 1>asked ourselves after five heavy days of selling, at some

0:09:19.520 --> 0:09:22.280
<v Speaker 1>point this has become a buy. And there's probably other

0:09:22.360 --> 0:09:24.880
<v Speaker 1>short sellers that they're thinking the same thing, Jero, Jerome,

0:09:24.920 --> 0:09:27.160
<v Speaker 1>you've got a shingle from the London School of Economics.

0:09:27.200 --> 0:09:29.640
<v Speaker 1>But far more important than that, you darken the door

0:09:29.720 --> 0:09:32.440
<v Speaker 1>of one of the best economics programs in the world,

0:09:32.520 --> 0:09:36.000
<v Speaker 1>the University of Western Ontario. Folks, I can't say enough

0:09:36.400 --> 0:09:40.160
<v Speaker 1>about their statistics work as well. You've got the cred.

0:09:40.640 --> 0:09:43.520
<v Speaker 1>If you had a cup of coffee now with board

0:09:43.559 --> 0:09:51.560
<v Speaker 1>member William Ackman, what would you advise him? Uh? You

0:09:51.600 --> 0:09:55.199
<v Speaker 1>know what, I we don't really get into micromanagement at

0:09:55.240 --> 0:09:59.360
<v Speaker 1>this level. But I don't know. We have a lot

0:09:59.400 --> 0:10:01.840
<v Speaker 1>of respects for the Lackman. He's a very smart guy.

0:10:01.840 --> 0:10:04.880
<v Speaker 1>It's got a very great track record. UM. If I

0:10:04.960 --> 0:10:08.240
<v Speaker 1>was a valiant shareholder, UM, I would view it as

0:10:08.240 --> 0:10:12.000
<v Speaker 1>a very positive step that he's becoming actively involved in it. So,

0:10:12.880 --> 0:10:14.439
<v Speaker 1>but we don't. We don't even get involved with the

0:10:15.120 --> 0:10:18.439
<v Speaker 1>micro management of our company. Well, congratulations on your belief

0:10:18.559 --> 0:10:21.280
<v Speaker 1>of many quarters ago, and we hope we can speak

0:10:21.320 --> 0:10:26.160
<v Speaker 1>to you again. Jerome hass Uh is with the good guys.

0:10:26.360 --> 0:10:30.120
<v Speaker 1>Lightwater Partners is well. Michael mckeey was like, way out front.

0:10:30.200 --> 0:10:32.880
<v Speaker 1>Is that accurate? Yes? Uh, you know, the folks at

0:10:32.920 --> 0:10:36.360
<v Speaker 1>Citron Research Andrew Left was the first to publish the

0:10:36.559 --> 0:10:39.520
<v Speaker 1>Valiant concerns, and of course they called him all kinds

0:10:39.559 --> 0:10:42.760
<v Speaker 1>of names. Yeah, that's that's part. He turned out to

0:10:42.760 --> 0:10:45.440
<v Speaker 1>be right. And the folks at Lightwater also got in

0:10:45.520 --> 0:10:48.240
<v Speaker 1>early on the short haven't they been retained to help

0:10:48.280 --> 0:10:51.000
<v Speaker 1>the Toronto the police. Somebody's well, no, we're not even

0:10:51.040 --> 0:10:55.320
<v Speaker 1>going there. Jerome hasas wonderful to speak to him on

0:10:55.360 --> 0:10:58.199
<v Speaker 1>this day. There'll be much more on Bloomberg Radio to

0:10:58.280 --> 0:11:01.920
<v Speaker 1>brief you on bow Wall Street about Valiant. A lot

0:11:01.960 --> 0:11:05.120
<v Speaker 1>of other news is well. Green on the screen up

0:11:05.160 --> 0:11:10.199
<v Speaker 1>seven Uh the vics fourteen point three zero. This is

0:11:10.240 --> 0:11:11.440
<v Speaker 1>Bloomberg Surveillance