Pershing Square sells final stake in Valeant Pharmaceuticals for large tax loss

MONTREAL — Pershing Square Capital Management has bailed on Valeant Pharmaceuticals International by selling its final stake in the drugmaker for a large tax loss.

The New York City private equity firm, which had been a business partner with Valeant in its failed hostile bid for drugmaker Allergan, announced the sale Monday after markets closed.

Shares of Valeant (NYSE:VRX) fell more than eight per cent at US$11.10 in after-hours trading on the New York Stock Exchange. They closed down 23 cents to C$16.23 in Toronto.

Once one of Canada’s most valuable companies following years of acquisitions, Valeant (TSX:VRX) has seen its shares plunge amid controversies over drug prices and its relationship with U.S. mail-order pharmacy Philidor Rx Services.

Pershing Square CEO Bill Ackman and vice-chairman Steve Fraidin will remain on the board of the Laval, Que.-based company until their replacements are elected at the May 2 annual meeting.

Once Valeant’s largest shareholders, Pershing Square had whittled down its stake over time.

At Valeant’s current price, the investment represented 1.5 to three per cent of Pershing Square’s funds but required a “disproportionately large amount of time and resources,” Pershing said in a statement.

“As a result, we elected to sell our investment and realize a large tax loss which will enable us to dedicate more time to our other portfolio companies and new investment opportunities.”

Since joining the board last year, Pershing Square said Ackman and Fraidin have worked with Valeant’s board to stabilize the drugmaker by replacing senior executives, refreshing the board, announcing a strategy to sell non-core assets, and paying down US$2.7 billion of net debt.

In December, Pershing sold US$3.47 million worth of shares to generate year-end losses for tax purposes. That came a year after it sold about five million shares — approximately 15 per cent of its Valeant holdings — to generate a tax loss for 2015 as the firm faced the biggest loss in its history.

Last April, Ackman testified before a Senate committee about Valeant’s much-maligned strategy of buying niche drugs and raising their prices by as much as 3,000 per cent. With the drugmaker’s then-CEO Michael Pearson stepping down, Ackman promised to use his influence on the company’s board to try and revamp its pricing strategy.

Ackman had once viewed Valeant as an undervalued company that would eventually overcome this scandal after two to four years of legal scrutiny.

In his news released, the activist investor credited Valeant CEO Joe Papa and his team of doing a great job refocusing and setting a new course for the company.

Follow ↕RossMarowits on Twitter.

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