Hedge Fund Titan Bill Ackman’s Surefire Bet Turns Into a $4 Billion Loss
A little over two years ago, William A. Ackman, one of Wall Street’s brashest and most self-assured hedge fund managers, was on top of the world. A billionaire before he hit 50, he was generating double-digit gains for his investors and raking in hundreds of millions in fees for his firm and himself. Hailed as a master investor, he clinched his highflier status in the fall of 2014 by paying $90 million with some friends to buy the penthouse at One57, a 13,500-square-foot aerie in Midtown Manhattan overlooking Central Park. He didn’t plan to live there — it was an investment property — but until he sold it, the apartment would make a good party space, he told The New York Times. If Mr. Ackman were a stock, that might have been his peak.
Today, things are very different for him. His company’s performance is way down, he is in the midst of an expensive divorce, and on March 13, he and investors in funds run by Pershing Square Capital Management swallowed a $4 billion loss on Valeant Pharmaceuticals International, a beleaguered drug company. As bad bets go, it was one for the record books. Valeant was a big Pershing Square holding. In May 2015, Mr. Ackman said Valeant’s acquisition strategy made it “a very early-stage Berkshire,” referring to Berkshire Hathaway, Warren E. Buffett’s investment vehicle. But only a few months later, Mr. Ackman and his investors began riding Valeant’s shares all the way from $262 to $11, driven both by rival investors who had bet against Valeant’s shares and former fans who dumped the stock as bad news emerged.
As much as Mr. Ackman and investors in his $11 billion firm would like to close the book on Valeant, they cannot do so quite yet. That’s because of a Valeant-related lawsuit in a federal court in California contending that he and his firm violated securities laws in 2014. According to the plaintiffs, Pershing Square secretly acquired a stake in the pharmaceutical giant Allergan based on nonpublic information from Valeant that it intended to mount a takeover bid. This is not just any lawsuit. Damages in the case may be $2 billion, as noted by the judge who certified the litigation as a class action Wednesday. Mr. Ackman’s lawyers, who in court hearings have put potential damages at less than $1 billion, are vigorously contesting the case and contend there is no liability. Defendants in the matter, which has not received a lot of publicity recently, are Mr. Ackman, his funds, Valeant and J. Michael Pearson, the company’s former chief executive.
The case is entering a crucial stage. Court documents indicate that Mr. Ackman and Mr. Pearson have either been deposed by lawyers for the plaintiffs or will be questioned under oath soon. The documents also show that Mr. Ackman must set aside 12 hours to answer questions. Mr. Pearson was the architect of Valeant’s business model, in which the company acquired drugmakers and jacked up prices on their products. Mr. Ackman, 50, is one of the country’s best-known activist investors — taking large positions in companies and trying to use that weight to influence their direction and decision-making. Initially, Mr. Ackman praised Mr. Pearson’s strategy of acquiring rivals rather than developing drugs internally. Mr. Ackman declined to comment on the mistakes he made in Valeant or the lessons he gleaned from the loss.
Read the full article here