Coverage: Valeant sells products to raise cash
Valeant Pharmaceuticals, which has been through some major issues in the past year, is selling its cancer business Dendreon as well as three skincare products for total proceeds of more than $2 billion, raising some much-needed cash.
Phil Serafino and Johannes Koch of Bloomberg News had the news:
L’Oreal SA, the Paris-based cosmetic giant, will pay Valeant $1.3 billion for three skin-care brands, according to a statement Tuesday. Valeant will also sell its Dendreon Pharmaceuticals unit to closely held Chinese conglomerate Sanpower Group Co. for about $820 million. Valeant’s shares and bonds jumped after the news.
The agreements mark Valeant’s biggest divestitures in almost three years, and a start to its efforts to pay down about $30 billion in debt. It’s a significant break for Chief Executive Officer Joe Papa, who took over in May to help turn around a company that had been embroiled in scandals about high prices and accounting that led to legal and regulatory investigations — along with declines in its share price.
“There is a lot more to do regarding asset sales to help reduce the leverage more meaningfully, but we view this as a good start,” Gary Nachman, an analyst at BMO Capital Markets who rates the shares the equivalent of neutral, wrote in a note to investors.
Nachman and at least three other analysts said Valeant is getting solid prices for the assets, which is good news for a company that’s under pressure to raise cash. The deal with L’Oreal offered the biggest premium, valuing Valeant’s skin-care brands at 7.7 times their annual revenue.
Carleton English of The New York Post reported that Valeant’s stock surged on the news:
Shares of the scandal-plagued pharma giant surged as much as 14 percent, to $17.53 a share, in early Tuesday trades after it announced it’s selling three skincare lines to L’Oreal in a $1.3 billion cash deal.
Proceeds of the deal to unload its CeraVe, AcneFree and AMBI brands, expected to close by the end of this quarter, will be used to pay down debt under the company’s senior credit facility.
Valeant’s total debt is $30.3 billion.
Valeant shares have been walloped over the last year and a half amid account fraud and price-gouging allegations during the tenure of Valeant’s former CEO Michael Pearson.
Shares of the company have plunged more than 90 percent from the stock’s high of $257 in July 2015.
Lucinda Shen of Fortune notes the money will be used to pay down some of Valeant’s debt:
BMO Capital Market analysts Gary Nachman and Chris Wolpert wrote in a Tuesday note that Valeant’s decision to sell off some $2.1 billion in assets was a good start to paying down its hefty debt. The team has placed a “hold” rating on the stock.
“The first transaction is the sale of Dendreon (Provenge) to Sanpower Group for $820 million in cash. Provenge is a treatment for prostate cancer and is not core to Valeant; thus, we are not surprised by this asset sale. We estimate Provenge sales of $306 million for 2016, which translates to a multiple of about 2.7x. Valeant has been struggling to accelerate Provenge since it acquired the product, and given that the company does not have a real oncology presence we think this deal makes a lot of sense.”
Douglas Miehm and Joel Hurren over at RBC Capital Markets, who have the equivalent of a “hold” rating on the stock, wrote that they viewed the transactions positively.
“We note that the combined estimated EBITDA multiple of the two transactions is ~9.5x, slightly below management’s 11x EBITDA asset sale guidance. We note that some investors have called into question Valeant’s ability to execute on its commitment to sell assets and subsequently we believe this will mitigate this concern. Although the sale multiple was slightly below the expected ~11x EBITDA, we believe the shares will react favorably to the sale.”