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"Risks and When We'd Sell

Investing in a company that relies so heavily on acquisitions means bearing larger-than-normal risks in two distinct ways. First, we'd have no reason to invest without high confidence in Pearson's record of wealth building (as opposed to mere empire building). If Pearson were to depart, or if other factors (like higher financing costs) meant Valeant couldn't meet the return-on-investment hurdles that drive wealth creation, we'd look for an exit.

Second, less robust organic growth means Valeant needs larger and larger deals to maintain the growth rates that justify today's share price. We're no stranger to this type of challenge; similar challenges plague Berkshire Hathaway, for instance. Still, if the $9 billion Bausch & Lomb deal proves the pinnacle of Valeant's capabilities, we'll end up with mediocre returns and likely look for a new prescription."
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