| Valeant Pharmaceuticals International headquarters (photo credit: Ron Antonelli/Bloomberg) |
Who says you can’t make money if you are all in on Valeant Pharmaceuticals International? While hedge funds managed by Bill Ackman’s Pershing Square Capital Management and John Paulson’s Paulson & Company have suffered sharp losses in the past year or two in part due to their huge stakes in the embattled drug company, one investor who had a similar stake in the company has been able to remain profitable nonetheless.
Jeff Ubben’s ValueAct Capital was up 1.9 percent in the second quarter and is now up 7.5 percent for the year. Last year it was up 4 percent after gaining more than 12 percent in the second half.
As recently as the end of 2016, Paulson, Pershing Square and ValueAct were the three largest shareholders of Valeant. Unti the end of 2015, Valeant was one of ValueAct’s top holdings.
In the first quarter, Pershing Square threw in the towel when it sold its entire stake of about 18.1 million shares of the drug company. Shortly afterward, ValueAct bought an additional 3 million shares, most of them for $10.81 per share. The stock closed Wednesday at $16.99 per share, a roughly 57 percent gain on the latest purchase price. Paulson recently joined the board of Valeant and bought an additional 2.7 million shares or so, for an average price of around $13.71.
Ubben founded ValueAct in 2000. In May, the firm named president Mason Morfit as chief investment officer. Ubben remained as chief executive officer.
Although he has long been called an activist, Ubben prefers to be viewed as a long-term investor who sometimes gets actively involved in management decisions. ValueAct is generally a little more diversified than Pershing Square, typically holding a little more than a dozen individual positions. The firm declined to comment for this story.
In the second quarter, Rolls Royce, the London-based aircraft engine maker, is said to be the main contributor to performance, according to an individual familiar with the fund’s performance. The position, however, won’t show up in the quarterly 13F filings, since it is traded on a non-U.S. exchange.
ValueAct also enjoyed smaller gains from software and cloud computing company Microsoft, consultancy Willis Towers Watson, real estate giant CBRE Group (CB Richard Ellis) and Alliance Data, a marketer of private-label credit cards. On the other hand, it lost money on oilfield services giant Baker Hughes.
However, this situation could sharply change in the third quarter. On July 3, Baker Hughes closed its merger with General Electric’s oil and gas equipment and services operations. The new company is called Baker Hughes, a GE company. As part of the deal, Baker Hughes shareholders were to receive a special one-time cash dividend of $17.50 per share on July 6.
Meanwhile, ValueAct is said to be continuing to sell its positions. It now has $1.5 billion in cash, which is roughly 10 percent of its current $15.2 billion in assets under management. Earlier in the year it returned several billion dollars to investors.
At a Reuters conference in February Ubben said he was considerably bearish, telling the audience: “We’re very late cycle. I’m disinvesting. The stuff we’re finding is not thematic. It’s very specific.”
As of the end of the first quarter, it held 14 U.S. longs in addition to Rolls Royce. Five of them were much larger than the rest: Baker Hughes, which we noted recently merged with a GE unit; 21st Century Fox; Microsoft; Alliance; and CBRE.
Earlier this year, ValueAct partner Kelly Barlow joined Alliance’s board.
Unless ValueAct files a 13D or 13G indicating an ownership stake of at least 5 percent, we won’t know whether the firm made any changes to its portfolio in the second quarter until August 15.
