Both the medical and financial markets were stunned when William Ackman generated a tax loss when he sold about five million shares in pharmaceutical giant Valeant. Considering Ackman was one of Valeant’s most vocal backers – particularly as the Canadian company faced questions about its drug pricing and accounting practices, the news seemed a bit confusing.
Perishing Square Capital Management trimmed its ownership to 8.5 percent from 9.9 percent. This move further lowered Valeant’s value as shares declined 12 percent after news of the sale was announced. Perishing Square reported that it sold its Valeant shares explicitly to create a tax loss for U.S. investors in two accounts. The loss from these two accounts could potentially offset tax profits from the accounts’ other investments. That said, Perishing explained that there were two other international accounts that did not sell they shares because they wouldn’t gain the same tax advantage.
Valeant is being targeted in Congress for its strategy of buying other pharmaceutical companies, slashing jobs and raising the price of the drugs that that company makes. It cut ties with mail-order pharmacy Philidor in October after it was alleged that it was using strong-arm tactics to force benefits managers away from cheaper drugs in favor of pricier ones to which Valeant holds the rights. Recently, the company lowered its forecast of 2015 profit and gave a guarded outlook for 2016. .
Lewis Daidone is a certified public accountant with an interest in topical financial news that impacts the markets. His wide ranging experience includes start-ups and established Fortune 100 companies. Follow this Twitter account for more information.