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With New Valeant Pharmaceuticals Intl Inc (VRX) Stake, Bill Ackman Maintains Large Exposure to Healthcare Sector

In a new filing with the US Securities and Exchange Commission, activist investor Bill Ackman‘s Pershing Square disclosed a significant long position in Valeant Pharmaceuticals Intl Inc (NYSE:VRX). According to the 13D filing, Pershing owns 19.47 million shares of the pharmaceutical company, which represent 5.7% of its outstanding common stock. In addition, the investor disclosed a letter agreement received from Valeant, which reveals that Pershing Square intends to have discussions with Valeant regarding its plans to acquire Salix Pharmaceuticals.

Bill Ackman, Carl C. Icahn, William A. Ackman, Pershing Square Capital Management, Icahn Capital LP,

At the current price of Valeant Pharmaceuticals Intl Inc (NYSE:VRX)’s stock, Pershing Square’s stake in the company is valued at roughly $3.83 billion, which makes it the largest position in the fund’s equity portfolio, replacing Allergan, which was the largest holding in the fund’s latest 13F filing. Mr. Ackman’s bet on Allergan provided significant returns after the company was acquired by Actavis plc (NYSE:ACT) at $219 per share in cash and stock. Under the terms of the deal, the investor was entitled to receive around 9.81 million shares of Actavis and around $3.44 billion in cash. Moreover, with acquiring a stake in Valeant Pharmaceuticals Intl Inc (NYSE:VRX), Mr. Ackman will probably keep his fund’s exposure to the healthcare sector at around 50% of Pershing Square’s equity portfolio. However, since the fund’s portfolio is concentrated and usually contains less than ten positions, its positions in the healthcare sector will remain represented by Valeant, Zoetis Inc (NYSE:ZTS), and probably Actavis plc (NYSE:ACT).

Even though, Pershing Square has just disclosed holding shares of Valeant Pharmaceuticals Intl Inc (NYSE:VRX), the investor’s connection to the company dates back at least a year, when they both made a bid to buy Botox maker Allergan. While the parties were involved in the takeover, Pershing was not allowed to purchase shares of Valeant. However, after Allergan agreed to be acquired by Actavis plc (NYSE:ACT) and the deal was completed last week, Mr. Ackman decided to go activist on the Canadian drug maker. However, while the position is activist by nature and the investor might engage in some discussions with the company, the filing also stated that Pershing Square thinks “highly of [Valeant’s] management team, strategy, and track record.”

Moreover, some previous speculation stated that Mr. Ackman might push for a merger between Valeant and Zoetis Inc (NYSE:ZTS), in which Pershing Square holds 41.82 million shares, representing 8.3% of the company. In February, Zoetis and Pershing Square entered into an agreement to appoint one of the fund’s partners, William Doyle, to the company’s board of directors.

Valeant Pharmaceuticals Intl Inc (NYSE:VRX)’s stock has gained 50% over the last 52 weeks amid its attempts to buy Allergan and recent plans to acquire Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP) for $11.1 billion. Valeant launched its offer to acquire Salix in February, but had to later raise the proposed price by 10% to $173 per share in cash after Endo Pharmaceuticals stepped in with another offer, which amounted to $175 in cash and stock. Salix’s board already expressed its support for Valeant’s new offer, and Endo has withdrawn its bid.

Moreover, the company is one of the favorite healthcare stocks among hedge funds as the latest round of 13F filings showed. One of the largest shareholders of Valeant was Jeffrey Ubben’s ValueAct Capital, which owned 19.38 million shares as of the end of 2014. In addition, Mr. Ubben was recently appointed to the company’s board of directors.

Mr. Ackman is considered one of the best activist investors, who over the years has embarked on several campaigns and proxy fights with companies like Canadian Pacific Railway Limited (USA) (NYSE:CP), Target Corporation (NYSE:TGT), and J C Penney Company Inc (NYSE:JCP). Of late, aside from pursuing the takeover of Allergan, Mr. Ackman has also been campaigning fiercely against Herbalife Ltd. (NYSE:HLF), claiming that the company is a pyramid scheme and will be shut down at some point.

Mr. Ackman still remains convinced of Herbalife Ltd. (NYSE:HLF)’s illegal business practices and in a recent report, Pershing Square stated that it remained confident that the company will either collapse or will be shut down by regulators. However, Mr. Ackman’s substantial short position in the company took a minor hit recently as the stock jumped by 25% over the last month, amid a dismissal of a lawsuit launched by Herbalife shareholders, who brought a claim against the company in an attempt to recover some monetary damages on the back of Herbalife’s stock declining after scrutiny by the government. Herbalife Ltd. (NYSE:HLF)’s stock is still down by 41% over the last three years.

Pershing Square generated average annualized returns of more than 20% since its inception in 2004. In October, Mr. Ackman took Pershing Square public on Euronext Amsterdam and the stock has gained more than 22% since the IPO.

Disclosure: None

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