I'm Shocked -- "Fast" Fred To Join Valeant's Board Of Directors -- Simply... Shocked.

"Wait?! There's gambling going on in my establishment? MY establishment?!" I'm shocked. Simply shocked¹.

Here is Valeant's deal press deck -- and while I've been waiting for Valeant's SEC Form 8-K, for more complete (and less puffed) disclosures on the topic -- according to the slide deck, Fred has been named. Apparently, he will join Valeant's board. [I wonder who will provide D&O insurance -- and at what premium rates.]

Yawn.

Probably my last set of observations on this overpriced, overly-levered deal: when Warburg Pincus took B + L private a few years back, its debt was a modest $820 million. Immediately prior to this deal, B + L's standalone debt weighed in at $4.2 billion (over a five-fold increase -- most of the last billion dollars of that used to pay Warburg Picus over $750 million in cash dividends). The interest payments on that debt-load were $246 million -- completely obliterating all the operating income B + L was then generating. The same story, only amplified by a more than doubling factor, has played out at Valeant: On March 31, 2013, Valeant's debt (immediately prior to the deal) stood at $10.4 billion. We will wait for the official SEC deal filing, but pro forma combined debt for the two companies may approach $14.8 billion -- on a company that may only have EBITDA of around $3.2 billion for the year 2013, on a pro forma basis.

So, debt to EBITDA (forget any GAAP EPS!) will approach 5-to-1 for all of 2013. [This item has been updated: it is closer to 6 to 1.]

Wait. Where have I seen this scenario before? Oh. Right. Dade-Behring, almost exactly a decade ago, now. Hey! Goldman, Sachs was a financier in that deal, too. Those ignorant of history are fated to repeat it.

Just the same, I wish Valeant all the best of luck. That combined management team -- with these moderate margin business franchises, aggressive synergies projections/targets (given that Warburg Pincus already pushed hard on the expense lines, from 2007 to 2013), and the combined, massive debt loads -- will plainly need it.

Put more bluntly -- $800 million of post-merger cash savings in 2014 seems improbable.

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1. To be clear, investing with these folks is -- in my opinion -- simple river-boat gambling. Nothing more.</sup>

Valeant Is STILL Likely Overpaying -- By 20 Per Cent -- For Bausch + Lomb

Well, it is now definitive -- and, to be clear -- we still have to wait to see where all the debt gets allocated, and whether the private equity holders (Warburg Pincus and friends) will share risk of loss/gain on Valeant's forthcoming $1.5 billion ot $2 billion equity issuance (to fund the deal, in part) -- but at $8.7 billion, it still seems about 20 per cent too rich. Valeant apparently hopes to cut S, G & A in half, but Warburg already gutted that mine, and Valeant forgets that the surgical business of B + L has high S, G & A needs.

In my opinion, Valeant must be thinking it will sell the surgical lines to pay down some debt. It cannot run the combined businesses, intact -- with as low as a 20 per cent S, G & A line, for the longer haul. Here is a bit of the Bloomberg story on it -- do go read it all:

. . . .Valeant will have about 18,000 employees once the deal is completed, Pearson said. The number of jobs that may be eliminated to reduce overlap and duplication hasn’t been determined, he said. Bausch & Lomb spends about 40 percent of revenue on selling, general and administrative expenses and Valeant aims for about a 20 percent ratio, Pearson said.

“There’s many, many non-personnel savings here as well,” Pearson said. “We can get better distribution fees in different markets. There’s a lot of purchasing synergies. There’s a lot of real estate synergies. . . .”

Pretty sad for the employees -- of both companies. No matter how the debt in the deal gets allocated, Alcon is still much larger than the combined companies, in eye-care. With Novartis behind the Alcon brands, and J&J also ahead of the combined companies in scale and scope -- this is a very tough road, ahead -- to win on price competition. The combined businesses just won't have J&J's, or Alcon's scale.