Pershing Square Holdings, Ltd. Public Class USD Accum.Shs · LSE:PSH
Pershing Square Holdings, Ltd. Public Class USD Accum.Shs — Pershing Square Holdings — Sohn Investment Conference 2015
47 slides from Pershing Square Holdings, Ltd. Public Class USD Accum.Shs's conference presentation, May 2015
Slide 1: 45x Pershing Square Capital Management, L.P.
45x Pershing Square Capital Management, L.P.
Slide 2: Disclaimer
Disclaimer The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in this presentation are based on publicly available information. Pershing Square recognizes that there may be nonpublic information in the possession of the companies discussed in this
Slide 3: Jarden Corporation: ~45x Return in 14 Years
Jarden Corporation: ~45x Return in 14 Years Since Martin Franklin joined Jarden in 2001, the company has achieved success as a well-managed consolidator of consumer products assets, generating a ~45x total shareholder return to-date Indexed total shareholder return of Jarden from 6/25/2001 to 5/1/20
Slide 4: Investors Have Consistently Underestimated Jarden's Earnings Potential
Investors Have Consistently Underestimated Jarden’s Earnings Potential In June 2001, investors could have purchased Jarden’s shares at ~0.4x 2016 Consensus EPS(1) Jarden’s Historical Share Price as a Multiple of 2016E Earnings (6/25/2001 to 5/1/2015) 16x 14x 12x 10x P/E Multiple 8x 6x 4x 2x 0x 2001
Slide 5: Platform Specialty Products (NYSE: PAH)
Platform Specialty Products (NYSE: PAH) Martin Franklin, Chairman of Jarden, and private investor Nicolas Berggruen co-founded PAH in early 2013 In May 2013, PAH raised approximately $900mm(1) in a public offering at $10 per share In October 2013, PAH announced the acquisition of MacDermid Inc
Slide 6: Platform Specialty: ~175% Return in Two Years
Platform Specialty: ~175% Return in Two Years PAH Share Price from 5/16/2013 to 5/1/2015 $35 $30 10/10/13: Announced $27.40 acquisition of $25 MacDermid for $1.8bn TEV PAH Share Price $20 5/16/2013: Began trading 8/6/14: near cash NAV Announced 10/20/14: $15 acquisition of Announced Agriphar SA for
Slide 7: Nomad Holdings Limited (NOMHF)
Nomad Holdings Limited (NOMHF) (“Nomad”) Martin Franklin and Noam Gottesman, co-founder of GLG Partners, co-founded Nomad in early 2014 In April 2014, Nomad raised $500mm(1) in a public offering and began trading at a valuation approximating its cash per share In April 2015, Nomad announced th
Slide 8: Nomad Holdings: ~80% Return Since IPO
Nomad Holdings: ~80% Return Since IPO Nomad shares have increased by ~80% in just over a year, driven by the Iglo acquisition announcement Nomad share price from 4/9/2014 to 4/27/2015(1) $20 4/20/15: Announces $18 acquisition of Iglo 4/9/2014: Foods Holdings Began trading for €2.6bn TEV $15 near cas
Slide 9: Nomad Holdings: Why Has the Stock Gone Up So Much?
Nomad Holdings: Why Has the Stock Gone Up So Much? Nomad’s share price has increased dramatically since the Iglo Foods acquisition was announced What are the possible explanations for this 80% price increase? Did Nomad purchase Iglo for materially less than its fair value? Nomad paid ~8.5x 2014
Slide 10: What is going on here?
What is going on here?
Slide 11: Platform Value
Platform Value Businesses managed by superior operators that execute value- enhancing acquisitions and shareholder-focused capital allocation have substantial Platform Value Additional Examples of Well-Known, Successful Platforms: Liberty Media 11
Slide 12: Martin Franklin's Platform Strategy
Martin Franklin’s Platform Strategy Franklin’s intense focus on value-creating capital allocation has driven significant share price appreciation across several companies Value-creating acquisition and capital allocation strategy Maintains high standards for quality and valuation of acquired bus
Slide 13: Not All Acquisitive Businesses Create Value
Not All Acquisitive Businesses Create Value While Martin Franklin and other intelligent capital allocators have created tremendous value through platforms, there are many examples of acquisition-intensive companies that have destroyed shareholder value These failures can be distinguished from succ
Slide 14: Valeant: An Under-Appreciated Platform
Valeant: An Under- Appreciated Platform
Slide 15: Valeant's Platform Strategy Has Created Shareholder Value
Valeant’s Platform Strategy Has Created Shareholder Value Over Many Years An investment in Valeant shares on the day Mike Pearson became CEO has appreciated to ~45x its initial value in seven years including dividend reinvestment Valeant total shareholder return from 2/1/2008 to 5/1/2015 5,000% 3/16
Slide 16: Valeant's Acquisition Strategy
Valeant’s Acquisition Strategy Management expects to invest the majority of the company’s free cash flow in value-creating acquisitions Large acquisitions of traditional pharma / device companies with bloated cost structures and unproductive R&D spending Small, bolt-on acquisitions of products e
Slide 17: Valeant's Acquisition Track Record & Financial Framework
Valeant's Acquisition Track Record & Financial Framework Valeant has earned a >20% unleveraged return on the $20bn+ it has invested in acquisitions since 2008 (excluding tax benefits)(1) Conservative underwriting of attractive returns Target 20%+ unlevered IRR, before tax synergies (est. 30%+ af
Slide 18: How Can One Evaluate Valeant's Platform Value?
How Can One Evaluate Valeant’s Platform Value? Valeant’s Platform Value is a function of several factors: Competitive advantages of the Platform Company Valeant Operational efficiencies relative to competitors Integration track record Revenue synergy potential Access to and cost of capital Transacti
Slide 19: Valeant: Bausch & Lomb Transaction
Valeant: Bausch & Lomb (“B&L”) Transaction Transaction Background In May 2013, Valeant agreed to acquire global eye health company Bausch & Lomb for $8.7 billion Valeant acquired B&L from Warburg Pincus VRX paid 13.5x 2012 Adj. EBITDA of $643 million(1) (1) Source: Bausch & Lomb S1. 19
Slide 20: Valeant: B&L Transaction
Valeant: B&L Transaction Valeant management has increased the value of B&L from $8.7bn to more than $21bn B&L Transaction Value Creation ($mm): Sources of Value Creation Low Mid High 2014 Pro‐Forma B&L Free Cash Flow $ 1,425 $ 1,425 $ 1,425 • Under Valeant ownership: Multiple 15.0x 16.0x 17.0x B&L’s
Slide 21: Valeant Stock Price – Bausch & Lomb
Valeant Stock Price – Bausch & Lomb Despite issuing equity, VRX shares appreciated 47% in the six months following press reports announcing Valeant’s agreement to acquire B&L VRX share price from 5/1/2013 to 11/29/2013 $120 8/7/13: VRX announces second quarter 5/24/13: earnings results $110 $110 6/1
Slide 22: Investors Have Consistently Underestimated the Valeant Platform
Investors Have Consistently Underestimated the Earnings Potential of the Valeant Platform In 2008, investors could have purchased Valeant's shares at ~0.3x 2016 Consensus EPS(1) Valeant's Historical Share Price as a Multiple of 2016E Earnings (2/1/2008 to 5/1/2015) 16x 14x 12x 10x P/E Multiple 8x 6x
Slide 23: Why the Stock Market Undervalues Platform Companies
Why the Stock Market Undervalues Platform Companies The traditional multiple-of-earnings valuation methodology does not incorporate Platform Value The traditional multiple-of-earnings valuation approach: Measures the earnings of the company’s existing asset base Applies a multiple to earnings
Slide 24: Equity Research Analysts Starting to Give Credit to Platform Value
Equity Research Analysts are Starting to Give Credit to Valeant’s Platform Value “Valuation: Our price target is based on a DCF that includes a bolt-on sensitivity, with the increase due to a higher DCF with SLXP more than offsetting a slightly more conservative bolt-on analysis [of $50 dollars in p
Slide 25: Valeant Valuation Model
Valeant Valuation Model
Slide 26: Management's $7.5bn+ 2016 EBITDA guidance implies ~$16+ EPS
Management’s $7.5bn+ 2016 EBITDA guidance implies ~$16+ of 2016 Adj. EPS1 Valued at 16x forward earnings, this implies $250+ of value by year end 2015, a ~10%+ return from today’s stock price However, this analysis ignores one of Valeant’s most valuable assets, its Platform Value (1): Assumes $300mm
Slide 27: Platform Valuation Model Assumptions – Acquisitions
Platform Valuation Model Assumptions – Acquisitions Assumption Rationale Acquisition Multiple 4x forward sales1 Management’s long-term goal is to acquire assets for 2x to 3x sales Pro Forma Financials ~52.5% EBITA margin 2016 corporate EBITA margin of Acquired Assets >55% 5% organic growth
Slide 28: 2020 Earnings Scenarios
2020 Earnings Scenarios We believe Valeant can earn ~$28 to ~$39 per share in 2020, if management is able to continue its historically successful capital allocation strategy Annual M&A Cap $0bn $5bn $10bn $20bn Base Business Revenue $ 15,000 $ 15,000 $ 15,000 $15,000 Revenue of Acquired Products ‐ 5
Slide 29: Valuation Multiple: Summary
Valuation Multiple: Summary If Valeant’s durable portfolio were valued within the range of multiples of businesses that we believe to be comparable, and its patent cliff portfolio were valued using a DCF analysis, then we estimate that Valeant’s forward earnings multiple would be as follows: 2020 %
Slide 30: Valuation Summary
Valuation Summary Assuming management continues to make attractive acquisitions, Valeant trades at a large discount to fair value Annual M&A Cap $5bn $10bn $20bn 2020 EPS $ 27.90 $ 32.40 $ 38.60 Values acquired NTM P/E Multiple 16.0x 16.0x 16.0x assets and base business at 16x 2020 Value (January 20
Slide 31: Valeant's Late-Stage Pipeline
Valeant’s Late-Stage Pipeline Valued at 8x its estimated peak earnings contribution, Valeant’s late- stage pipeline, excluding Salix, may be worth as much as ~$40 per share 2015 Development Expected Management Peak Sales Est. Product Description Milestones Launch Year Low High Luminesse Eye Whitenin
Slide 32: Summary
Summary Platform companies can be incredibly valuable but are often underappreciated A traditional multiple-of-earnings approach does not capture platform value Investors should consider the potential for additional value creation through future acquisitions in valuing platform companies The
Slide 33: Appendix
Appendix
Slide 34: “Patent Cliff” vs. “Durable” Drugs/Medical Devices
“Patent Cliff” vs. “Durable” Drugs/Medical Devices Patent Cliff Products A patent provides a legal monopoly to the inventor of a drug or medical device for a limited period of time During the period of patent exclusivity (usually 20 years from the filing of the patent application), superior pr
Slide 35: Sum of the Parts Valuation: Two Types of Cash Flow
Sum of the Parts (SOTP) Valuation: Two Types of Cash Flow Durable Products Products: Valuation Methodology Durable Rx Branded Generics Multiple of after-tax profits OTC Durable Devices Patent Cliff Products Products: Valuation Methodology Patent Cliff Rx Discounted cash flow analysis 3
Slide 36: Durable Portfolio: Few Healthcare Trading Comparables
Durable Portfolio: Few Healthcare Trading Comparables Valeant’s durable business has few peers among publicly traded pharmaceutical companies Big Pharma Specialty Pharmaceuticals Few durable assets High product High exposure to concentration competitive, low-growth Few durable assets cat
Slide 37: Durable Portfolio: Healthcare Trading Comparables
Durable Portfolio: Healthcare Trading Comparables Only a handful of public healthcare companies have durability comparable to Valeant's durable product portfolio Perrigo Co. ~80%1 of EBITA is durable – assumes large biologic drug is a patent cliff asset Major businesses: Private label and bran
Slide 38: Durable Portfolio: Healthcare Transaction Comparables
Durable Portfolio: Healthcare Transaction Comparables Several large portfolios of durable OTC products have been sold in the last decade xForward Net Income Announced Adj. for 25% Date Asset Buyer Price ($bn) Reported Premium (1) 10/7/2005 Boots Healthcare Int'l Reckitt Benckiser $3.4 26x 20x 6/26/2
Slide 39: Durable Portfolio: Trading Comparables Outside of Healthcare
Durable Portfolio: Trading Comparables Outside of Healthcare We believe trading comparables outside of traditional healthcare can be useful for valuing Valeant’s durable business Personal Care Global Beauty 39
Slide 40: Durable Portfolio: Trading Comparables Outside of Healthcare
Durable Portfolio: Trading Comparables Outside of Healthcare We believe trading comparables outside of traditional healthcare can be useful for valuing Valeant’s durable business Long Term Industry Gross Margins Organic Growth Valeant (Durable) >70% 5% - 7% Personal Care1 50% - 60% 4% - 6% Global Be
Slide 41: Durable Portfolio: Trading Comparables Outside of Healthcare
Durable Portfolio: Trading Comparables Outside of Healthcare Comparable non-healthcare companies are valued at an average of 25x 2015 earnings 2015 P/E Multiple 30x 27x 25x 25x 22x 20x 15x 10x 5x 0x Average Personal Care (1) Global Beauty (2) Source: CapIQ median estimates as of 5/1/2015. (1) Person
Slide 42: Valuation Multiple: Durable Portfolio
Valuation Multiple: Durable Portfolio We conservatively value Valeant’s durable portfolio at 20x forward earnings Valuation Range – Forward P/E Multiple Pershing Square Average: 23x Valuation Multiple: 20x Healthcare Trading 21x 23x Comparables (1) Healthcare Healthcare Transaction 16x 29x Comparabl
Slide 43: Valuation of Patent Cliff Portfolio (Base Business)
Valuation of Patent Cliff Portfolio (Base Business) The below assumptions imply a patent cliff portfolio value in 2020 equal to eight times forward earnings 10 years of remaining cash flow, from 2020 Reflects average patent life of cliff portfolio in 2020 Assumes Xifaxin (550mg tablet) loses e
Slide 44: Durable vs. Cliff Product Sales: Base Business in 2020
Durable vs. Cliff Product Sales: Base Business in 2020 Implied Cliff Valeant Total Sales (Estimated) Product Sales 2020e 2020 $mm Sales % of Sales Valeant (ex‐Salix) Cliff (ex‐Salix) 1,150 Durable 10,600 90% Salix 3,250 Cliff 1,150 10% Sub Total 11,750 Cliff Sales 4,400 % of Total Sales ~30% Salix 3
Slide 45: Platform Valuation Model Assumptions – Base Business Forecast
Platform Valuation Model Assumptions – Base Business Forecast (No Acquisitions) Revenue: ~$11.5bn1 (2015) ~$15bn (2020) Valeant (ex-Salix) 2015 and 2016: sales growth consistent with management guidance2 2017 thru 2020: 5% organic growth excluding impact of loss of exclusivity; patent cliffs
Slide 46: Platform Valuation Model Assumptions - Sources and Uses of Cash
Platform Valuation Model Assumptions - Sources and Uses of Cash Sources of cash Operations: 90% of Adj. Net Income converts to Cash Income Leverage: Annually leverage balance sheet to 4x trailing Net Debt/Pro-Forma LTM EBITDA Current leverage is >5.5x Net Debt/Pro-Forma LTM EBITDA 5.75%
Slide 47: Platform Valuation Model Assumptions - Sources and Uses of Cash
Platform Valuation Model Assumptions - Sources and Uses of Cash Uses of cash Acquisition financing and timing: Acquisitions are cash financed Acquisitions are made at start of year Valeant acquires assets until annual M&A cap or leverage limit (4x Net Debt/Pro-Forma LTM EBITDA) is reached
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