Here is Valeant’s deal press deck — and while I’ve been waiting for Valeant’s SEC Form 6-K, for more complete (and less puffed) disclosures on the topic — according to the slide deck, Fred has been named. Apparently, he will join Valeant’s board. [I wonder who will provide D&O insurance — and at what premium rates.]
Probably my last set of observations on this overpriced, overlevered deal: when Warburg Pincus took B + L private a few years back, its debt was a modest $820 million. Immediately prior to this deal, B + L’s standalone debt weighed in at $4.2 billion (over a five-fold increase — most of the last billion dollars of that used to pay Warburg Picus over $750 million in cash dividends). The interest payments on that debt-load were $246 million — completely obliterating all the operating income B + L was then generating. The same story, only amplified by a more than doubling factor, has played out at Valeant: On March 31, 2013, Valeant’s debt (immediately prior to the deal) stood at $10.4 billion. We will wait for the official SEC deal filing, but pro forma combined debt for the two companies may approach $14.8 billion — on a company that may only have EBITDA of around $3.2 billion for the year 2013, on a pro forma basis.
So, debt to EBITDA (forget any GAAP EPS!) will approach 5-to-1 for all of 2013.
Wait. Where have I seen this scenario before? Oh. Right. Dade-Behring, almost exactly a decade ago, now. Hey! Goldman, Sachs was a financier in that deal, too. Those ignorant of history are fated to repeat it.
Just the same, I wish Valeant all the best of luck. That combined management team — with these moderate margin business franchises, aggressive synergies projections/targets (given that Warburg Pincus already pushed hard on the expense lines, from 2007 to 2013), and the combined, massive debt loads — will plainly need it.
Put more bluntly — $800 million of post-merger cash savings in 2014 seems improbable.