Crises both corporeal and corporate - business as usual if you are the CEO of Valeant!

      

Anyone who has been reading this blog in the last year knows I have been following the story (occasionally quite soap opera-like) of one J. Michael Pearson and Laval-based Valeant ($VRX), who, as has seemed inevitable for some time now, are about to finally part ways and pursue their futures independently. As early as January this year, I suspected that the end was nigh for Pearson, even before his return to the fold after a stint in hospital with a bout of severe pneumonia. 

I daresay that hospital bed probably seemed a lot more peaceful and comforting than his office did upon return, not least as the SEC announced it would be investigating Valeant mere hours after Pearson strode through the doors for the first time in many months. On top of that, there were new accounting issues at the company, which actually brought Howie Schiller, ex-CFO and sitting President, squarely under the spotlight; a glaring spotlight that had previously been reserved seemingly exclusively for Pearson and which no doubt had further exacerbated the state of his health by year end, 2015.

But he came back to the same set of problems he had previously been able to walk away from via his medical leave - including scrutiny from Congress and US presidential candidates alike, delays in 10-K filing that were due in no small part to the Philidor debacle, and a potential debt default crisis and crashing share prices - so he must have felt he had been sent out of the frying pan into the fire. He was putting out fires in both the corporeal and corporate worlds: from dealing with his own health issues if not his very survival, to walking back into an unhealthy company that clearly needed something cut out of it, surgically, before the disease spread further. 

It can't have been easy, especially as it was becoming clearer and clearer what that something needed to be. But no one has ever said that big Mike isn't a very smart man, and I am pretty certain he saw it coming, maybe as far back as sometime in 2015. I think his medical leave could (should?!) have been used as the perfect exit strategy, but then he would have lost his golden parachute and no CEO worth their salt (even if they are being fired for not being worthy of it!) is going to let that happen without a fight. 

Who knows, but I don't think that Valeant had that level of contempt for him to try and exact that punishment on him, and/or, to an extent they did, but rather than let him go and walk away in relief, they brought him back in from that potential exit to make him face some of the mess that had been left behind after a disastrous year in 2015. He wasn't going to get off that lightly, so in return for being allowed to grab his parachute out, he was forced to return and face some s**t that was of his own making. 

When Valeant announced on a recent Monday that an executive search had been initiated, which had already identified potential candidates such as Fred Hassan (ex-Schering Plough) and Chris Viehbacher (ex-Sanofi), well, the writing was placed very firmly on the wall. On that same day Valeant made clear that it felt that certain practices inside the company, and even it's corporate culture, were clearly not in alignment with what the board felt was good for business, and even the guy brought in to stabilise the ship during Pearson's absence drew fire from the company. Howie Schiller has since been asked to step down as a company director, but in his case, whether due to hubris or honour, he has refused to do so. 

The committee placed to investigate the problems inside the company went so far as to accuse Schiller and the firm's chief accountant of actual "improper conduct" which is likely to draw greater scrutiny, not less, from regulatory watchdogs involved in the whole Valeant debate (if not debacle). 

"The tone at the top of the organization and the performance-based environment may have been contributing factors resulting in the company's improper revenue recognition."

Those are pretty damning and quite telling words, and if you were either Pearson or Schiller then you would most certainly have felt them sting. One cannot help but wonder if the return to the fray of Schiller during Pearson's absence was actually a carefully calculated strategic move - bringing back a key individual who had played a major role (both good and bad?) in getting Valeant to the corporate crossroads they were then at - thereby providing a second scapegoat if/when the appropriate need and time came?

Another dominant player in this story is Bill Ackman of Pershing Square, whose name has also come up repeatedly in my posts on the subject of Valeant. As an activist investor and (former) staunch supporter of Pearson's, he has never been shy of the spotlight or his enthusiasm for continued investment in the company, notwithstanding his offloading of a swathe of Valeant stock on New Year's Eve 2015, in what appeared to be an attempt at an under-the-radar softening of his belief. But Ackman now states that he will play an even more active role in Valeant's next phase, alongside his Pershing Square colleague, Steve Fraidin. 

"I am looking forward to working with the board to identify new leadership for Valeant. The company's large scale and dominant franchises in eye care, dermatology, GI and other therapeutic areas, coupled with its extraordinarily low valuation, present a spectacular opportunity for a world-class healthcare executive."

Ouch. 

Given the mess left behind, the CEO job at Valeant is one helluva daunting proposition, and clearly not one for the faint of heart. It's going to take a rock-solid and rock star-level qualified individual to take the helm, and Valeant can expect that person to make some equally world-class demands, conditions and clause insertions in their contract, as an insurance policy for stepping into what will be a very fiery breach. It's time now for big Mike to breathe and go off to face new challenges, while Valeant strips his identity from their brand and rebrands itself anew with another dynamic individual at the top. 

It could be a great opportunity for whitewashing out their former brand in fact, and coming back fresh with a new logo, a new message, a new corporate culture, and even close to a brand (no pun intended!) new company. Rest assured, I will be watching closely! :)

Photo of Valeant Pharmaceuticals HQ in Laval by Christinne Muschi-Reuters