Ouch…….

I woke up this morning to note that my short term positions in gold and silver had been knocked out by a spike overnight. This meant that the last pyamid position was a loss and because I run a wide stop the overall position was just a bit better than breakeven and I thought…bugger. Then I read this and thought it could be worse.

By my math, based on public filings, Bill Ackman’s Pershing Square Capital Management had spent a bit more than $4.6 billion on Valeant Pharmaceuticals International Inc. shares and options as of yesterday afternoon. Of that, Pershing Square had gotten back about $574 million when it sold shares at the end of 2015 and 2016, leaving it with about a $4.1 billion basis in its position. Yesterday it closed out that remaining position, selling the remaining shares, some 27.2 million of them, through Jefferies Group LLC for about $300 million (or about $11 per share). So out of a $4.6 billion investment, Pershing Square got back about $874 million.

But that math omits one final indignity. Ackman only owned 18.1 million of the 27.2 million shares that Jefferies sold. The other 9.1 million shares were underlying some stock options that he had traded with Nomura Global Financial Products Inc. Those options had been restructured various times, but as of the most recent filing they were put/call combos: Ackman bought call options with a $60 strike price and sold put options with the same strike price (all expiring in January 2019). That works out to be more or less a forward purchase of the stock for $60. So when Pershing Square announced yesterday “that it has sold its investment in Valeant,” presumably that means it also closed out those options. Ignoring time value and assuming that it closed them out at $49 per share, that means that Pershing Square owed Nomura about $447 million.

More here – Bloomberg View

For context here is a chart of Valeant.