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Valeant still under pressure to speed up turnaround, even after Ackman sells stake

Valeant Pharmaceuticals International Inc.'s Joseph Papa speaks to the press following their annual general meeting in Laval, Quebec June 14, 2016.

CHRISTINNE MUSCHI/REUTERS

Joseph Papa can breathe a sigh of relief that he's no longer under pressure to turn around Valeant Pharmaceuticals International Inc. at a pace that suits U.S. hedge fund investor Bill Ackman. But make no mistake: the chief executive officer of the troubled Canadian drug maker is still under the gun.

To reduce Valeant's debt load of $30-billion (U.S.), the Laval, Que.-based company has tried to raise cash by selling assets, saying last week that it used proceeds from the recent sale of skin care brands to L'Oreal to pay down $1.1-billion in term loans. It also reiterated a commitment it made last August to pay down $5-billion in debt within 18 months.

It's also proposing to extend some of its near-term loans and repay a portion of its existing debt with new debt, which would shift the maturity of about $8.5-billion due within the next five years to beyond 2022.

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But Valeant is still negotiating with potential buyers and lenders from a position of weakness, as its revenues keep sliding.

"I don't see the turnaround happening with that much debt on the balance sheet," CIBC World Markets analyst Prakash Gowd said in an interview. "I think they're trying to do asset sales but they're just not getting the right valuations that would make sense."

Shares of Valeant took another beating on Tuesday, a day after Mr. Ackman's hedge fund said that it had sold its stake at a large loss. Valeant's stock plunged 10 per cent to $10.89 in New York, a selloff prompted by news that one of the company's most-vocal backers was cutting ties.

"There are a lot of people who looked at Bill Ackman as a reason to hold the stock and now that he's thrown in the towel, there are a lot of people who'd say, 'What am I doing here?' " Mr. Gowd said. "If you're going to get out at this level, you're probably thinking that there's really no end in sight for the troubles and the chances of a turnaround are very, very slim."

Pershing Square Capital Management LP said late Monday that Mr. Ackman and the fund's vice-chair Steve Fraidin would leave the board at Valeant's next annual meeting.

"Serving on the board of a company undergoing a transformation requires a significant commitment," Valeant's Mr. Papa said in an e-mailed statement, "and we accept their decision not to stand for re-election to the board of directors."

Valeant's stock has fallen by more than 95 per cent since July, 2015, when Valeant was a darling on Wall Street. Mr. Ackman had been one of the most vocal supporters of Valeant's then-strategy of growing quickly through debt-fueled acquisitions, cuts to R&D and drug price hikes.

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That all changed when Valeant came under intense scrutiny in 2015 for concealing its ties to Philidor Rx Services LLC, a previously little-known specialty pharmacy that dispensed mainly Valeant-branded drugs to patients. The drug maker has been on a downward spiral ever since, with its stock price and earnings falling. It's facing litigation and multiple regulatory probes in the United States and Canada.

A board and executive team with many fresh faces have been trying to remake the troubled company by better managing its portfolio of drugs, getting its financial house in order and restoring trust.

"It's hard to interpret Pershing's decision at this time as anything but a realization that this turnaround situation may end up taking a lot more time and perhaps have greater challenges than originally anticipated," Gary Nachman, an analyst at BMO Nesbitt Burns, said in a note.

"This was a time when it would have been more ideal for the top shareholder to continue to support these efforts rather than 'throw in the towel' when the stock is so depressed."

Pershing Square said it was exiting its position because "the investment required a disproportionately large amount of time and resources."

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