who's the winner in valeant

Bill Ackman's Pershing Square Capital Management held 18.1 m shares in Valeant as of December 2016, which represented 5.28% of Valeant, and was valued at $263 m. 

In fact, Pershing Square also held some call options to purchase 9.1 m shares. The total exposure to Valeant was about 3% of its $11 b assets under management. While Ackman had been defensively bullish on the investment, he has now exited the position entirely. 

The average price of investment was $196 per share, and the average sale price was $11 per share, a loss of over 94%. Such are the rules of the investment game; no mercy; no sorry; no thank you. The markets are never accommodating; they are as ruthless as one can be. 

Yet, Valeant was a business with some terrible economics. 

The market value of its equity today is $3.82 b, whereas its debt is $30 b. Almost of all its operating assets are owned by debt holders. With problems around, the economic value of $16 b goodwill becomes questionable too. Under the circumstances, Ackman was probably correct in exiting from this business. 

The equity was worth $88 b in July 2015 when the share price was $257.

Based upon the sale of 18.1 m shares and options equivalent of 9.1 m shares, Pershing Square must have incurred a huge loss on its investment. The loss, which could be anywhere between $3 b to $5 b, could have been avoided, but only with the power of hindsight. 

NY Times estimates the loss to be $4 b.

Bloomberg estimates the loss to be more than $2.8 b.

Whatever is the quantum of loss, it is quite significant to the assets managed by Pershing Square. Ackman also admitted this in his annual letter of January 2016:

We cannot tell if greed, arrogance, or anchor bias was the reason for continuing to hold the stock despite negative vibes about the business. It could even be a rational theory that went terribly wrong; a mistake that Pershing Square and its shareholders need to forget, and move on.

Still, there is no dearth of long positions in Valeant as of now. Significant institutional investors include John Paulson (Paulson and Co) and Jeffrey Ubben (ValueAct Capital).

There is yet another battle to be won; again between Bill Ackman and Carl Icahn. This time on Herbalife. 

Who's going to win?