BBG view digged deep into the cash strapped (lolz) Pershing Square and how Ackman just took down another 12.5 mill shares of VRX, for just $75 mill.
That’s because he didn’t buy stock: He went to two derivatives dealers, Nomura and UBS, and bought call options on Friday that give him any gains in value of Valeant’s stock above the strike price of $95. He also sold those dealers put options, which put him on the hook for any losses in the value of the stock below the strike price of $60. And he sold other call options with a strike price of $165, capping his upside: If the stock gets above $165, he gives up any further gains. Then he did the same thing again on Monday, only with strike prices of $100, $70 and $130. The options he bought cost about $235 million, plus about $9 million of hedging costs; the options he sold brought in about $169 million. Here’s the accounting:
The result of all of this is a set of payoffs that look, locally, a bit like buying stock; if the stock ends up above $95 but below $165, Ackman has more or less done the equivalent of buying $1.1 billion worth of stock, though with a bit of friction. Further away from today’s price, though, it looks different: If the stock ends up below $95 — and, again, it’s below there now — Ackman avoids some losses, though if Valeant really craters he’s on the hook. And if Valeant ends up back where it was when Ackman was first buying — that is, near $200 — then he misses out on some of the gains.
Ackman is either the most stubborn man on the face of the planet. Or, he is 100% sure, due to thorough investigation, that Bronte Capital and Citron Research are merely feces tossers, men yelling fire in a room filled with pyrophobics.
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