To steer off the debt muck Valeant Pharmaceuticals International Inc. (NYSE:VRX) former boss dipped it into; the company has abandoned the acquisition strategy and turned to asset offloading. Recent reports indicate that the company is already exploring ways of disposing of several integral franchise businesses including the eye surgery equipment business acquired three years ago from Bausch & Lomb. Though no company has openly expressed interest in buying the eye health company, analysts speculate that the sale of the business could fetch upwards of $2.5 Billion.
However, the amount is insignificant to the Canadian company that is already $30 Billion deep in debt. Of this, $12 Billion is owed to the banks, and the rest is corporation debt. But to reduce this debt to a manageable level, the new Valeant CEO, Joseph Papa, seems inclined to the sale of a bigger franchise and retention of the eye franchise that Valeant considers an important part of their business. This is evidenced by Valeant’s recent statement stating that “Bausch & Lomb franchise and its dedicated team are a critical part of our business.”
Alternatives to the eye business
To cover for the possibility of holding onto the eye franchise, Valeant said it was engaged in “discussions with third parties for various divestitures including but not limited to Salix.” Salix Pharmaceuticals Ltd (NASDAQ:SLXP) is a stomach drug business that the company hopes to sell to Japan’s Takeda Pharmaceuticals Co. Ltd. (TYO:4502) for a disclosed value of $10 Billion. According to the Wall Street Journal, should the sale proceed, Valeant will receive $8.5 Billion in cash and the rest in royalties.
Bigger debt crisis
Valeant’s sudden rush in disposing of valuable assets like the Bausch & Lomb franchise as well as Salix that was acquired 18 months ago raises, even more, questions as to the financial situation of the Canadian health giant. The move further fuels speculations about its accounting and general business practices. Additionally, it leaves the business community and shareholders wondering whether the company has been honest in presenting the debt.
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Nonetheless, Valeant’s debt situation and accounting integrity will only be cleared by the decision the company takes after closing the sale of Salix. The continued push to sell the eye business would signal of a severe financial situation.
