Valeant’s Wise Name Change to Bausch Health

I was thinking about the news earlier today that Valeant Pharmaceuticals, the Canadian healthcare company that saw its stock price rise from $24 to $263 in the span of four years before cratering to a low of $8 in 2016, will change its corporate name to Bausch Health Cos. in July 2018.

This is clearly a no-brainer good move for the company. Brand names and intellectual property exist to serve you. If people pay a premium because of how they regard your brand, you should hold onto it for dear life (I cringe when I see investors throw away generations of good-will to name a business after themselves or to announce that a new sheriff is in town, as it throws away portions of the pricing power and customer base that had been acquired over time).

Conversely, if your brand has a negative value, and people don’t want to associate with it, it is the wisest course of action to take the lesson, resolve to improve, and start over fresh with the lesson firmly in mind (see Western countriesthat recognize bankruptcy and the biblical mandate to stop seeking vengeance for wrongs after seven years). The rebranding is a chance to move on past the negative perception and build future goodwill from a level base.

There is a scientific hypothesis, never rigorously tested, called “nominative determinism” that suggests that individuals tend to work in occupations that seem culturally appropriate for their names–i.e. The name exerts a gravitational pull over the outcome.

The psychologist Carl Yung wrote in his 1972 book Synchronicity: “We find ourselves in something of a quandary when it comes to making up our minds about the phenomenon which Stekel calls ‘the compulsion of the name.’ What he means by this is the sometimes quite gross coincidence between a man’s name and his peculiarities or profession. For instance…Mr. Sout is the food minister, Mr. Horsetrader is a lawyer, Mr. Calver is an obstetrician…Are these the whimsicalities of chance, or the suggestive effects of the name, as Stekel seems to suggest, or are they ‘meaningful coincidences’?”

In 1994, Jerry Yang changed his business from the name “Jerry’s Guide to the World Wide Web” to “Yahoo!” What is a yahoo? In Gulliver’s Travels, the yahoos were the unsophisticated, slow-moving goobers that couldn’t keep up and relied upon poor manners to deflect. Is there some nominative determinism at play when Yahoo management fell dramatically and needlessly behind Google’s rise, while to this day, the comments sections to its articles are filled with awful manners?

Philip Morris was obviously connected with the Marlboro man and the associated smoking brands. It shifted its brand name to Altria, meaning “One, above all” and then managed to ruthlessly allocate capital so that its shareholders would get rich through the spinoffs of its Kraft and Philip Morris subsidiaries. Is it nominative determinism that, seven years after changing its name, Altria decided to rely upon one core collection of brands making up the U.S. tobacco market, discarding its U.S. and international food divisions and its international tobacco divisions?

In the case of Valeant Pharmaceuticals, nominative determinism arguably applied in that “Valeant” can be a Latin translation of “the anointed one who believes himself more deserving of the bounty” and, from 2011 through 2016, the company was run as though it were entitled to gobble up the entire healthcare industry, carelessly taking on extremely large piles of debt, and then disregarding all industry norms to jack up prices and earn 40% net profit margins in a healthcare industry that averages 11.5% net profit margins.

This July, Valeant will have a new logo, new NYSE ticker symbol, and will go by the name Bausch Health Cos. As a practical matter, it is a strong signal that it plans on holding onto its Bausch & Lomb subsidiary, which is great, because that is Valeant’s jewel asset and the most legitimate asset in the company’s portfolio–it makes contact lenses really well and is lucrative in its own right without needing to resort to shenanigans. The implementation of the phrase  “Health Cos.” after Bausch suggests that the rest of the portfolio is being recalibrated to follow the lead of its ethical and well-run standardbearer. It is a smart choice.

I also think it is entirely possible that shareholders of Valeant, soon-to-be Bausch Health Cos., are going to see a substantial recovery under newish CEO Joseph Papa. I’ve long believed that, if a company is profitable through the worst of a storm, it can generally survive to greener pastures. The cripping debt load of $32 billion has been reduced to $25 billion in the past two years. It is generating cash flows of $3 billion and is paying down the debt burden at a current rate of a $2 billion per year. The profits sit above $1 billion, meaning the stock currently trades at 6x earnings. Ten years from now, Bausch Health Cos. shareholders might be sitting on a $75 stock that benefits from a collection of subsidiaries powered by the sale of Bausch & Lomb’s contact lenses. If nominative determinism applies, the name new suggests a better fate than the old.

Originally posted 2018-05-08 02:30:21.

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