The market does not properly appreciate the value of Valeant Pharmaceuticals Intl Inc‘s (NYSE:VRX) two asset sales. With a $5.5 billion market capitalization, the market is telling you that all of Valeant’s business is worth $5.5 billion.
However, Valeant just sold off two small assets than amount to less than 10% of its total revenue for $2.1 billion, almost 40% of VRX stock value. Furthermore, one of those assets, Dendreon, was unlikely a profitable business.
Valeant had bought the Dendreon asset out of bankruptcy a couple years back for a little more than $400 million. Nonetheless, based on the two asset sales, the free market is telling investors that Valeant Pharmaceuticals assets is worth at least $21 billion. In other words, there is a huge disconnect in how the market values VRX stock, and how acquirers and deal makers value Valeant Pharmaceuticals.
Therein lies the reason that VRX stock is such a valuable investment, an illustration that not owning VRX stock is a big mistake.
BNL Members know that we own a small position of VRX stock, but have said that management’s willingness and ability to divest assets would be essential in determining what happens with VRX stock this year. The initial reaction to Valeant’s asset divestment has not been as expected, but that’s ok. Sooner or later, if a company makes good decisions, its stock tends to follow.