Despite debt pledge, Valeant’s M&A streak not done

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Doing deals is in the DNA of Canada's Valeant Pharmaceuticals International Inc., so even though the company has lately been emphasizing its growth from operations, investors have applauded its mergers and acquisitions strategy by relentlessly bidding up its stock.

Valeant chief executive officer Michael Pearson didn't tip his hand in a chat Thursday with The Globe and Mail on when and where the next big deal might come from, but he did suggest how the company might pay for it.

Valeant has mostly funded its acquisitions through debt, but Mr. Pearson indicated he'd like to see the company's leverage come down. "We've committed to our bondholders and our investors to getting our leverage below four [times equity], which we will do." He noted that a deal funded through equity is a possibility. (Such a deal would be dilutive to shareholders but wouldn't increase leverage.)

He also thinks that the historically low-interest-rate environment, which has made it easier to finance acquisitions using debt, is likely to continue.

"I don't think [interest rates] can go up a ton. Because if they do, the U.S. government will bankrupt the United States. They have so much debt, you can calculate how much they go up before the U.S. becomes insolvent."

There was, of course, one big deal that didn't work out – Allergan. Valeant spent much of last year trying to buy Allergan Inc. with the help of Bill Ackman, CEO of New York hedge fund company Pershing Square Capital Management.

"It wasn't fun," Mr. Pearson said of the busted deal. "Allergan had no interest in listening."

Mr. Pearson isn't keen on getting involved in another hostile takeover battle, noting that, of the dozens of acquisitions they've done recently, "when we've been in bidding situations, we almost always lose."

Valeant and Mr. Ackman were ultimately outbid by Actavis PLC, which paid $66-billion (U.S.) for Allergan – $12-billion more than Valeant was willing to pay.

Part of Allergan management's hostility, Mr. Pearson believes, was because they were convinced Valeant was going to slash and burn its research and development department. "They were a huge believer in spending a lot on R&D and they thought we would just get rid of all their R&D. I think that was the biggest pushback."

Describing Mr. Ackman, Mr. Pearson quipped, "He's sort of like the opposite [of me]. He's articulate, good looking – everything I'm not."