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Sandro Rosell
FC Barcelona President
Thursday, May 25, 2017

What has been a nightmare for Bill Ackman's Pershing Square Capital Management has become a dream come true for short sellers.

The stock for Valeant Pharmaceuticals International peaked at over $262 per share back in August 2015. When Ackman began buying shares, he predicted the price could climb as high as $330. Those hopes were dashed in large part due to an accounting scandal, which in turn created a snowball effect. Ackman's efforts reassure investors, which included replacing many of the company's board of directors and top execs, only delayed the inevitable. Since then, shares have dropped by some 96%, down to $11 per share as of this writing.

By the time Pershing Square sold off its 8% stake in Valeant, the firm had taken a loss of roughly $4 billion, according to a report by the Wall Street Journal. This major loss for Ackman and company has been a boon for those who bet against him.

Short selling, or “shorting” a stock is the practice of selling shares one does not own. An investor borrows those shares for a fee, sells them, then buys them back at the new (hopefully lower) price. They are anticipating that the stock's value will decline, and if it does, they pocket the difference between the price of the stock when it was borrowed, and when it was sold, minus the aforementioned borrowing fee. In the case of Valeant, short sellers have more than tripled their investment even with the costs of shorting factored in.

Though it might appear that Valeant stock has hit rock bottom, interest in selling short continues to increase. With Pershing Square out of the picture, short interest has risen to 52 million shares ($583 million), up from 29 million ($422 million) at the end of 2016. The fact that the increase in the overall value of shares is not proportional to the increased number of shares in play reflects the stock's ongoing decline.

In February, the Jewish Voice reported that during a presentation before his hedge fund's annual investor dinner, Ackman noted that he is in the process of investing in two separate entities that he did not name them outright. The Post reported that one of them is valued at $436 million, or 4 percent of his fund’s $12 billion capital. Ackman noted that the investment in question had been acquired in late 2016. The second of Ackman's investments is much larger and involves 9 percent of his capital, or $981 million. The later was acquired in early January. 

Ackman noted that the first investment is in a “high-quality business that generates predictable, recurring cash flows” with a “best-in-class management team.” 

According to the Post, Ackman’s refusal to disclose the names of the companies outright is a testament to his caution in getting ahead of himself in response to his hedge fund's poor performance in recent years. Pershing was down by 13.5 percent in 2016 and 20.5 percent in 2015.

 By: Daniel Perez