According to Streetinders.com Bill Ackman's Pershing Square (PSHZF) sold about $3.475 million shares of Valeant (VRX) for about $52 million:

The Reporting Persons sold Common Stock for the accounts of PS and PS II, the two onshore partnerships which are comprised of US taxable investors. PS and PS II sold, respectively, 3,359,178 and 117,512 shares of high-cost-basis Common Stock of the Issuer in order to generate a tax loss in 2016 for their investors. PS International and PSH, the two offshore funds, sold no shares of the Issuer's Common Stock.

"The Reporting Persons unwound (through a purchase to close transaction) over-the-counter European-style call options referencing a total of 9,120,000 shares of Common Stock which had an expiration date of January 20, 2017."

Sources suggest [i] the sale was motivated by Mr. Ackman's desire to generate 2016 tax losses for investors. This might be an opportune time for Ackman to cut exposure to VRX for the following reasons:

No Asset Sales In Sight

Valeant's Q3 revenue fell 11% Y/Y and 2017 is expected to be another down year. A major catalyst was expected to be a sale of some of the company's core properties. Market chatter suggested [i] Valeant was in talks to sell Salix to Takeda (OTCPK:TKPHF), (OTCPK:TKPYY) and [ii] buyers like Blackstone (NYSE:BX) and KKR (NYSE:KKR) were interested in its Australian drug unit - iNova. However, such sales have yet to materialize. In my opinion, potential buyers have a fiduciary responsibility to [i] structure around Valeant's potential legal exposures or [ii] reduce the purchase price by those exposures.

Such structuring issues might have been an impediment to Valeant's sale process. Secondly, the Fed is expected to raise interest rates this week. Such an event could cause the entire market to decline, including VRX. Buyers might have a less than optimistic view of global growth due to rising rates, which could hurt potential asset sales even further.

VRX's Road To $1

Rumors suggested that Takeda was interested in Salix at a purchase price of $9.3 billion or about 9.1x run-rate EBITDA. I used the rumored Salix deal as a proxy to value Bausch & Lomb, and Branded RX; I valued U.S. Diversified at 5.0x EBITDA given its expected revenue declines and the arrival of generic Isopress. My sum-of-the parts valuation is now less than $1.

A Fed rate hike could cause stocks to trade less on sentiment and closer to their intrinsic values. In that scenario VRX's road to $1 could be a very short road.

Will A Bloodbath Ensue?

Mr. Ackman is considered the "smart money" in many respects. By investing alongside the likes of Ackman and Bill Miller investors can potentially piggyback on their due diligence and stock-picking prowess. A commenter on my previous article captured the sentiment:

Commenter: I would love to see this at $20 18 months from now ... I am a bit surprised since it's so obvious it's worth $0, that Bill Miller and Ackman and their teams of analysts can't see it. We should forward this article to them.

Certain bulls have held out hope that management would announce an asset sale or do something to talk the stock up. The smart money's sale of shares could be a de facto admission that asset sales will not happy any time soon. It could also prompt bulls to sell VRX en masse, triggering a bloodbath.

Conclusion

The road to $1 could be here shortly. Bill Ackman was smart to cut his stake. Will a bloodbath ensue?