I decided to do some more research on VRX valuation. So I went to the late 2010 proxy document as it pertained to the proposed acquisition of Valeant by Biovail. Yes, Biovail bought Valeant, but then changed the name of the combined company to Valeant. Existing Valeant shareholders were cashed out with a special one time dividend and Biovail stock.
So, what did the expert investment bankers say about the respective valuations of both Biovail and the old Valeant just before the merger? Well, here iare the exact Morgan Stanley's comments that was included in the proxy voting materials. Remeber, this analysis was just done late 2010.
"Based on the analysis of the relevant metrics for each of the comparable companies, Morgan Stanley selected a reference range of share price to 2011 estimated EPS multiple of 6.5x to 9.5x for Biovail and a reference range of stock price to 2011 estimated EPS multiple of 11.0x to 14.0x for Valeant."
So let me get this straight. Biovail which was about 50% of the combined business got a 6.5 - 9.5 p/e valuation. And Valeant got an 11 - 14 p/e valuation. Remember that this opinion was just rendered a few months ago in late 2010.
So where are we now? VRX is going to earn $3.34 per share in 2011. These earnings are half Biovail's (at a p/e of 6.5 - 9.5) and half the old Valeant's (at a p/e of 11 - 14). That means VRX's p/e should be the average of the above p/e's. That would be a p/e range of 8.8 - 11.7 times. Lo and behold, now we have a VRX p/e of 15.9x???? 15.9 p/e is so well beyond the above p/e that experts Morgan Stanley just estimated a couple of months ago. And the CEPH p/e is very low too, so there is no p/e step up coming from any CEPH acquisition.
This is all just a big financial game where VRX is going to attempt to use its overinflated share price to do a big equity offering to pay for some of the CEPH acquisition after it funds the deal 100% with debt initially. The debt only acquisition is just a high speed move to try to get the deal done. The VRX CEO is all about doing deals fast (a huge mistake in my opinion - what is the rush to spend $7 billion without proper due diligence). No way VRX could do this deal with ay promptness if an equity offering had to be done beforehand. Any announcement of a VRX equity offering would crush the overvalued stock.
This is all a bunch of financial manipulation supported by the Wall Street fee whores. The investment bankers love these VRX bozos because of all the deals they do and the financing. All the VRX clowns are interested in are the stock price. Here is a quote from the CEO. "The stock price -- that's the metric, right? Over time, our job is to keep that going up," he says. Whenever I hear this, I know it will end badly. The stock price is not the objective unless you are a short term trader. The objective of the CEO is to build a business, create great products, manage costs, customers and employees and so on. These efforts should be done in a way to create long term shareholder value. The stock will take care of itself. There is a huge difference between this and what the CEO is saying. The CEO is just some short term financial manipulator trying to jack the stock price up without the real underlying support for such. He knows very well what Morgan Stanley determined the valuation to be.
I figure that this is going to end badly at some point with VRX ultimately collapsing due to its massive debt load and horrendous intangible assets that will prove too be vastly overvalued. Just not sure when the end comes.