A Lesson from Pharma?

This morning Pershing Square Holdings Ltd.’s head, “Bill Ackman “deeply and profoundly” apologized for his investment in Valeant Pharmaceuticals International Inc., a “huge mistake” that cost his firm $4 billion,” in a letter to investors.

Valeant stock is off by 95% from its peak in August 2015.

“Valeant acquired Salix for $11.1 billion and got what has become a key franchise of gastrointestinal drugs. Yet the products haven’t sold as well as expected, and Ackman said that it now looked like Valeant “substantially overpayed for Salix, and it has not yet achieved the results anticipated by prior management.”” Doesn’t that sound like every telecom acquisition since 1999?

“In the letter, Ackman said he had learned lessons, including that “a management team with a superb long-term investment record is still capable of making significant mistakes”.” The leadership that got you to one point may not be able to get you to the next point. We see it all the time. CEOs are blind to their own shortcomings and when they should look for advice.

“The highly acquisitive nature of Valeant’s business required flawless capital allocation and operational execution, and therefore, a larger than normal degree of reliance on management,” Ackman said in his letter. “In retrospect, we misjudged the prior management team and this contributed to our loss.”

Frontier has bought territories from AT&T and Verizon in the last 3 years. Yet they are losing subscribers and morale is at an all time low. Bankers want Frontier to spend (millions) on network upgrades. Other RLECs have learned that without investment in network to compete with cable broadband, revenues steadily decline. Here’s what the LECs spent in CAPEX. Comcast and Charter together spent $16B on network Bell Canada is spending $637M. You have to still work the acquisition. You still have to compete and sell and market.

INCOMPAS argues CenturyLink/Level 3 combo won’t promote competition. I think it will be a complete flop. C-Link’s HQ is in Monroe, LA. The telecom hub of talent is in Denver. Will the talent needed move to Monroe?

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Let's not forget that C-Link purchased Qwest and Savvis in large deals that did NOT pay off. They just sold off their data centers! They haven’t expanded outside the ILEC borders.

We have Fairpoint merging with another RLEC, too. It is NOT just about scale. It is about strategy and its execution.

These mergers won’t stop, but they aren’t exactly wins. It’s more like: I’m tired; someone buy me. Or buy something to obscure our abysmal organic growth.

SIDE NOTE: