The ViewValeant, the bitter pill of corporate greed and arrogance

Valeant’s sudden collapse has left the credibility of its management and its famous investors in tatters. The only difference between Chinese and western companies is that western ones play out their management and governance disasters in public with enough transparency for everyone to see.

Beguiling business plans and tenuous financing schemes cross all cultures. There’s nothing necessarily wrong with an acquisition strategy – Valeant closed US$37 billion of deals in eight years. But even the brightest people are led astray by greed and arrogance.

The recent departure of its CEO, Michael Pearson, another former McKinsey consultant turned superstar manager, followed the collapse in Valeant’s already hammered shares last week. Investors dumped its stock after it raised the possibility of technical default on its more than US$30 billion of debt along with the disclosure of inaccurate earnings forecasts.

Whether or not any improprieties occurred, the company may not recover from its internecine disputes. It blames its former chief financial officer, Howard Schiller, for submitting incorrect information to the company’s auditors, PwC. This caused them to submit several erroneous filings to the SEC. Schiller has denied improper conduct and intends to stay on as a member of the company’s board despite being asked to resign.

Sell-side research analysts have failed again According to a count by the FT last Monday, 21 out of 23 analysts were still advising investors to buy or hold Valeant shares at the current level of US$70 and several had set astronomic price targets at US$200. Valeant then warned about its possible debt default and the price dropped to US$30. Last August, Valeant was almost worth US$100 billion. Today its market capitalisation is about US$9 billion.