Bausch Health Companies Inc. (BHC-T) - formerly known as Valeant Pharmaceuticals Inc. - has fallen out of the country’s blue-chip stock index, marking the latest chapter in the company’s fall from its commanding heights.
S&P Dow Jones Indices said late Friday it will remove Bausch from the S&P/TSX 60 later this month. It will be replaced by Tourmaline Oil Corp. (TOU-T) The substitution of an energy company for Bausch also leaves the index of Canada’s largest companies without any representative of the health-care industry.
The move comes along with changes to the S&P/TSX Composite Index, the broadest measure of the Canadian market. All told, S&P Dow Jones Indices added three companies and removed four from the S&P/TSX Composite in Friday’s announcement.
Aurora Cannabis Inc. (ACB-T), once one of the most-valuable Canadian cannabis companies, is the most prominent departure. Construction company Aecon Group (ARE-T), Dream Office REIT (D-UN-T) and New Gold Inc. (NGD-T) are also leaving.
The new members of the Composite are Algoma Steel Group Inc. (ASTL-T); biotech Bellus Health Inc. (BLU-T); and auto-coatings maker Uni Select Inc. (UNS-T)
With the growth of index funds and other passive investing strategies, whether a stock is part of a major index can have a meaningful effect on share prices. Fund managers who track an index need to hold shares in the companies. Canadian stocks added to the composite, which has about 230 to 250 members, depending on the quarter, can see a price bump before and even after inclusion. Similarly, companies removed from the index lose a source of demand for their shares.
S&P Dow Jones Indices uses “float” – the value of shares that aren’t held by insiders and therefore trade frequently and are easily available to the public – to judge whether a company should be included in its indexes.
Research by Morningstar Direct for The Globe and Mail found Canadian mutual funds and exchange-traded funds with assets under management totalling $234-billion had returns that were 95 per cent or more correlated with the S&P/TSX Composite over the 12 months ended June 30, 2021. This included funds that explicitly say they track the index.
The changes take effect prior to the open of trading on Sept. 19.
Valeant was an investor darling, with a market capitalization that topped $100-billion in the summer of 2015 – when it became the largest company on the TSX – as investors embraced what CEO Michael Pearson was selling: A drug company that snapped up smaller drug companies and their underpriced products, rather than spending billions on drug development.
All along, however, there were aggressive accounting choices, as a handful of skeptics, including Toronto’s Veritas Investment Research, observed. Ultimately, the company ran into political trouble for its pricing practices, and investors turned against the company’s debt-heavy, growth-through-acquisition model as questions about its finances increased.
The company renamed itself Bausch Health in 2018. Earlier this year, it spun off its eye-care business as Bausch + Lomb, part of a plan to split into three separate companies. Today, Bausch Health has a market capitalization of just over $3-billion.
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David Milstead