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How Carl Icahn could create value with this health company, which has many valuable businesses

Carl Icahn on the sixth annual CNBC Institutional Investor Delivering Alpha Conference on September 13, 2016.

Heidi Gutman | CNBC

Company: Bausch Health Companies Inc. (BHC)

Bausch Health Companies Inc, previously Valeant Pharmaceuticals International Inc, is a Canada-based firm that develops, manufactures and markets a spread of branded and generic prescribed drugs, medical units and over-the-counter merchandise. It primarily develops merchandise within the therapeutic areas of eye health, gastroenterology and dermatology. Its dermatology merchandise deal with a spread of situations, together with actinic keratosis, zits, atopic dermatitis, psoriasis and different dermatoses. It additionally gives a choice of aesthetic medical units that tackle a wide range of situations, together with facial wrinkles, zits, pigmentation situations and laser hair elimination, amongst others. The gastrointestinal (GI) phase gives merchandise that deal with GI and hepatologic situations, together with hepatic encephalopathy, irritable bowel syndrome with diarrhea and ulcerative colitis, amongst others. Its eye health merchandise are marketed within the following classes: Contact Lens, Pharmaceutical Products and Surgical.

Stock Market Value: $11.3 billion ($31.93 per share)

Activist: Carl Icahn

Percentage Ownership: 7.83%

Average Cost: $25.57

Activist Commentary: Carl Icahn is the grandfather of shareholder activism and a real pioneer of the technique. While he’s not slowing down in any respect, he not too long ago reached an settlement with his son, Brett Icahn, to rejoin the agency because the eventual successor. Brett employed three portfolio managers to assist him search for the agency’s subsequent activist goal and this is Icahn’s first 13D submitting since Brett rejoined the agency. Brett has mentioned that he plans to make use of his father’s favored strategy of pushing firms to make adjustments designed to spice up their inventory costs, although he hasn’t dominated out pleasant bets too. This will not be a departure from the technique Carl has succeeded with for many years. He may be pleasant (i.e., Apple, Netflix) or he may be confrontational (i.e., Forest Labs, Biogen), usually it relies on the response of administration. Brett is a formidable activist investor in his personal proper, not as a result of he’s Carl’s son, however as a result of he has demonstrated an extended monitor document of extraordinarily profitable activist investing. Much has been written in regards to the Sargon Portfolio he co-headed at Icahn, which at one time totaled round $7 billion and included extraordinarily worthwhile investments in firms equivalent to Netflix Inc. and Apple Inc. The Saragon Portfolio considerably outperformed the market with an annualized return of 27%. However, previous to that Brett began in 2002 with Icahn as an analyst and was later accountable for campaigns like Hain Celestial (280.3% return versus 46.7% for the S&P500), Take Two Interactive (81.5% versus 64.5%) and Mentor Graphics (106.4% versus 79.4%).

What’s taking place:

Icahn intends to interact in discussions with the corporate’s administration and board concerning methods to reinforce shareholder value, together with the corporate’s ongoing strategic assessment.

Behind the scenes:

In Icahn’s 13D at Bausch, he states that he to intends to interact in discussions with the Company concerning methods to reinforce shareholder value, together with the corporate’s ongoing strategic assessment and doable board illustration. We consider he’s actually involved about strategic alternatives. First, the language about board illustration is boilerplate language for Icahn 13D filings however the language about strategic assessment will not be. Second, the board already has two 13D shareholder administrators – Robert Hale of Value Act and John Paulson of Paulson & Co. More probably Icahn is curious about creating value by strategic transactions at Bausch, which was constructed on many acquisitions through the years when it operated as Valeant.

Since Icahn’s submitting, 13D shareholder Glenview Capital launched a letter to the corporate welcoming Icahn as an energetic shareholder and releasing its personal plan for the corporate – unload stakes in or parts of its high-value, optimally-profiled belongings at honest costs to boost fairness and de-lever providing possession in iconic belongings to the many swimming pools of capital who’re chasing a scarce variety of fairly-valued, high quality progress options. As Icahn alludes to in his submitting, the corporate has already introduced that it intends to separate its eye-health enterprise into an impartial publicly traded entity from the rest of Bausch Health Companies Inc. in late 2021 and Glenview helps promoting 40% of this enterprise to the general public. Management acknowledged that it’s exploring varied capitalization constructions and the type of the separation transaction with a view to correctly capitalize each entities post-separation. As Glenview suggests, there are additionally alternatives to create value by promoting off different enterprise strains.

This is an space the place Icahn could definitely add value. The eye care enterprise accounted for $3.7 billion of the corporate’s $8.6 billion of income in 2019. Icahn will definitely need to ensure that shareholders get full value within the separation, which could imply a sale of the enterprise as a substitute of a separation. Who is aware of, perhaps optimum value can be derived by promoting the attention care enterprise and/or different Bausch businesses to a SPAC? With the variety of SPACs being launched lately, it’s only a matter of time earlier than they’ve to have a look at subsidiary businesses of public firms.

Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.

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