Valeant shares are doomed, but the company will still have a smidgen of life.
The acquisitions they made can not pay for themselves. Too much value was destroyed in the process. While there is enough value left in the acquired companies to pay off the debt holders (the lenders have been very careful to lend no more than Valeant can pay off), the shareholders will be left with pennies on the dollar for their investment.
If Valeant stopped acquiring now, and simply started paying off their debt from existing business profits, they will, just barely, be able to pay their debt down slightly faster than the rate of decline in the business. But with no financial resources available to making any investments (in either R&D or market development), by the time Valeant finishes paying the debt down, what will be left of their book of business will be a shadow of it's current self, and, correspondingly, their share value will be a fraction of today's valuation.
The original offer for Allergan (with $48 cash) had the opportunity to give Valeant a bit of breathing room. With the deal, Valeant would have been a bit more credit worthy than it is now (since it would be adding more revenues than debt load). Under the hypothetical scenario where Allergan accepted the initial Valeant offer and then Valeant stopped acquiring any further; the same debt pay down process would have left Valeant in a financially better shape than the no-more-acquisitions scenario described above. The post-debt-pay-down Valeant share would still be worth a fraction of today's stratospheric valuation (relative to earnings and debt load), but a bigger fraction.
Under the current offer for Allergan (with $72 cash), Valeant is essentially back in the same boat it is currently: With both earnings and debt load higher, but maintaining their present edge-of-the-abyss ratio.
As it is hard to see how Valeant can make another acquisition that will dwarf this one (like this one dwarfs B+L, B+L dwarfed Medici, and Medici dwarfed all the prior ones) -- there just aren't that many companies that dwarf Allergan -- it is fair to assume that this would be the last material acquisition. Whether MP likes it or not, after Allergan (or, for that matter, after failing to acquire Allergan and realizing that there are no easy $50B targets available), the future of Valeant is to start unwinding it's debt. This will either be through methodical pay down, controlled spin outs, or chaotic bankruptcy proceedings.
Dan.
