In the Canadian province of Quebec there was once a relatively average pharmaceutical company. But then some financial wizards of the McKinsey school of magic joined its top management, and they wanted to be big and powerful. Incidentally, at the same time, the great magician Ben B. from Washington began to spread large amounts of cheap money among the people. The ambitious managers therefore borrowed a lot of this cheap money and bought one drug company after another. Profits surged, and shareholders and Wall Street analysts were in awe of the management.
This previously insignificant company grew steadily until it reached a market capitalisation of US$ 90 billion. But then a couple of independent analysts took a closer look at the company and made a shocking claim – its sales were artificially inflated. R&D expenses, on the other hand, had been slashed entirely. In addition, customers were being ripped off with excessive price increases. The company’s net debt amounted to the unsustainable sum of US$ 30 billion. And, above all, the reported profits had never been earned.
As a result, the share price crashed, decreasing by 90%, and the CEO had to go. The company postponed reporting its annual statement for an indefinite period and admitted that it was close to bankruptcy.
A fairy tale? Unfortunately not. It’s the true story of the rise and fall of Valeant, one of the big stock market darlings of the past years on Wall Street.
With a Steady Hand 