October 27, 2015 / 8:54 PM / 2 years ago

ValueAct rallies Valeant investors as company fends off attack-source

4 Min Read

Oct 27 (Reuters) - Activist firm ValueAct is meeting with other large investors in Valeant Pharmaceuticals International , as the company aims to rally support amid allegations of improper accounting and aggressive pricing.

Mason Morfit, a partner at ValueAct, rejoined the board of Valeant on Monday and shortly afterwards started meeting with representatives from the company's top ten investors, a person familiar with the matter said on Tuesday.

Valeant shares have plunged more than 50 percent since their August peak after U.S. Democratic politicians took aim at the company's pricing policies. A federal subpoena followed and then last Wednesday, short-seller Andrew Left issued a report claiming fraud at Valeant, sending shares into a tailspin.

Valeant laid out a detailed defense on Monday of its relationship with specialty pharmacy Philidor - the firm at the center of Left's accusations.

Valeant has said it properly accounts for sales through its pharmacy partners and only books revenue once one of its medicines reaches a patient.

Morfit, who served on Valeant's board from 2007 to 2014, is expected to reiterate that message in his meetings, which may extend to smaller shareholders, said the person, who did not want to be identified because the discussions are confidential.

Valeant's top ten shareholders include Ruane, Cunniff and Goldfarb, T. Rowe Price, Paulson & Co, and Lone Pine Capital.

Morfit stepped down from the board in May 2014, in part because he had just joined the Microsoft Corp board and wanted to dedicate his efforts there, he said at the time. Four months later, ValueAct CEO Jeffrey Ubben joined the Valeant board as deal discussions with Allergan were heating up.

He remained on the board until August of this year, when he stepped down and handed the seat to ValueAct partner Robert Hale. According to a person familiar with the matter, Ubben stepped down from Valeant because he had just taken on a new role as a board member at 21st Century Fox. Hale remains a Valeant board member.

Valeant's stock dipped to $109.54 on Tuesday. Prior to Left's report last Wednesday, Valeant's stock was trading in the $150 range - and as high as $263 in early August.

The direct outreach by Morfit to Valeant shareholders, on top of the conversations that Valeant CEO Michael Pearson is already having with investors, shows how the activist hedge fund is going into overdrive to deal with the crisis and shore up its own investment.

ValueAct has been an investor in Valeant since 2006. Ubben and Morfit were involved in recruiting Pearson, who became CEO in 2008 and built the company into a more than $40 billion giant from more than 100 transactions. ValueAct, with $19 billion under management, now has two directors on the company's board, and was the fourth largest shareholder as of June 30.

William Ackman's Pershing Square, Valeant's third-largest shareholder, has scheduled a call on Friday at 9 am EDT to address the drug company's issues. Pershing's investment in Valeant came on the heels of the Allergan deal, which fell apart last year. Pershing owned 5.7 percent of Valeant as of June 30, and faced a paper loss of more than $800 million at one point last week.

ValueAct declined to comment for this story.

Reporting by Michael Flaherty; Editing by Nick Zieminski

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