Valeant CFO Robert Rosiello bought $5 million of Valeant stock last year under the company’s shareholder-friendly compensation policy. He is now sitting on paper losses of $4.34 million that he is unlikely to ever fully recover.
Robert Rosiello spent 30 years building a successful management consultant career at Mckinsey & Co. The Harvard MBA helped healthcare technology and consumer companies make acquisitions and improve financial performance, rising to become senior partner in charge of the global merger practice for a decade. He is on the board of Catholic Charities of New York and the Pew Research Center.
But at the age of 57, Rosiello made a decision that has not worked out so well. He became chief financial officer of Valeant Pharmaceuticals. At the time, Valeant was the darling of Wall Street and had a stock that kept soaring. Rosiello was close to Michael Pearson, Valeant’s longtime chief executive officer. The two got to know each other at Mckinsey, where Pearson spent 23 years.
“Rob is someone I have worked closely with for 20 years,” said Pearson after Rosiello took the Valeant CFO job. “I know his tremendous expertise in healthcare and in particular M&A, his unquestioned intellect, and work ethic and integrity will prove to be of great value to the Valeant organization and its shareholders.”
Rob Rosiello: Valeant Pharmaceuticals
Pearson and Valeant’s board had worked to create a culture and compensation system aimed at focusing management on shareholders and stock performance. As part of that program, Rosiello was required to hold Valeant stock equal to at least two times his base salary of $1 million plus target annual cash bonus of $1.2 million.
So Rosiello, who received a $6 million sign-on bonus upon joining Valeant, purchased the stock of his new employer. To show his commitment, Rosiello bought more stock than was required under his employment agreement. In June of 2015, Rosiello purchased $3 million of Valeant shares at an average cost of $232.51 per share. A few weeks later, in July, Rosiello purchased another $2 million of Valeant stock for as much as $257.25 per share.
Today, Valeant’s stock changes hands for $31.89, or 88% less than the levels Rosiello purchased the shares. Rosiello’s $5 million investment in Valeant is now worth $662,000. In other words, after several months Rosiello is sitting on $4.34 million of paper losses related to his Valeant stock purchases. Rosiello is entitled to receive one matching share from the company for each share he purchased, but those matching shares vest over a five-year period and at current levels they are worth $662,000. He also has a boatload of performance share units that are eligible to vest on the achievement of total shareholder targets ranging from 10% to 30% over a base price of $230.82 a share. It’s hard to see how Rosiello will break even on his investment in Valeant shares.
These days Rosiello is working under immense pressure to deal with problems that were created well before his arrival at Valeant. He needs to get Valeant to file its late annual financial report with the Securities Exchange Commission in time to stave off triggering a default with Valeant’s lenders. In doing so, Rosiello is working with an outside auditor, and a committee set up by Valeant’s board and advised by a former U.S. deputy attorney general to investigate the company’s relationship with its now defunct affiliated pharmacy.
Valeant said last week that its financial reports for the year 2014 and the first quarter of 2015 should no longer be relied upon, meaning Rosiello must now also work on earnings restatements for periods in which he didn’t even work at the company. In addition, Valeant is being investigated by the Securities & Exchange Commission and Pearson, Rosiello’s longtime colleague, is on his way out of the company, leaving Rosiello as essentially Valeant’s highest-ranking official remaining to clean up the mess.