Why Slashing Debt Is Important For Valeant Pharmaceuticals Intl Inc (VRX)?


Valeant VRX

Editors’ Update 9:07am PST: Analyst says that Valeant Reuters comments were “taken out of context”

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has elected to call an audible and go a different route.  After its recent attempt to acquire Allergan, Inc. (NYSE:AGN), the company received many criticisms. Now the company plans to take the criticisms head on and will slash debt and show investors what the company can do without acquisitions.

To Slash Debt

The company not only prefers to remain on the acquisition sidelines for some time, but has decided to change its strategy and aims to reduce its debt, Reuters reported.

Valeant believes that the move to reduce its debt will lift the price of its stock. The higher stock price would allow the company to be in a stronger position. As a result, it can offer a fewer number of shares in exchange of any merger proposal that might be announced in the future. Once it reduces its debt significantly, the company plans to return to the M&A table.

At the end of the September quarter, Valeant Pharmaceuticals’ debt stood at $16.3 billion. Rating agency, Moody’s, rated the company’s debt at Ba3, the third level of junk status.  An improved credit rating would enable the company greater flexibility for future acquisitions and lower interest costs. Media pundits and Allergan questioned the financial strength of Valeant during the highly publicized acquisition debacle, which could have also driven the company to cut down its debt.

Business Strength

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) seemed to have already tasted one clean quarter. A clean quarter is nothing but devoid of any one-time expenses related to the acquisition that used to reflect its balance sheet. Therefore, it believes that by continuing its efforts to deliver more clean quarters, it would be in a position to showcase its base business strength, Reuters said quoting a source.

Last month, the company indicated that it would spend a maximum of $2 billion in repurchasing its shares, senior notes, and other securities. Valeant is also planning to sell its products aggressively in the coming quarters.

Since 2008, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has been engaged in acquiring 40 companies spending $19 billion in the process. Valeant is taking a calculated decision to take time off from the M&A table to cut debt, and show investors what the company can do on its own.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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