a story While his portfolio has struggled, Mr. Ackman wasn't moving to meet redemptions of investor money with the sale, the people said.
"We elected to sell our investment and realize a large tax loss which will enable us to dedicate more time to our other portfolio companies and new investment opportunities," Pershing Square said.
Mr. Ackman's long history with Valeant traces back to early 2014, when he was introduced to then-Chief Executive Michael Pearson. Shortly after, the two men teamed up to make an unusual bid for Allergan. Mr. Ackman bought a large stake in Allergan before he and Valeant disclosed they were trying to buy the company for $46 billion.
Allergan rejected the approach and waged a hostile fight and attacked Valeant's business model, calling the company a "house of cards." Allergan ultimately sold itself to Actavis PLC for $66 billion, upending Valeant's bid but delivering Mr. Ackman and Valeant $2.6 billion in profit on Pershing Square's Allergan stake. Of the total profit, about $2.2 billion went to Mr. Ackman.
Mr. Ackman then bought a stake in Valeant itself in early 2015, a bet on Mr. Pearson's ability to buy up companies and squeeze profit out of them. The stock kept rising, boosting his portfolio broadly.
By the fall, the company was under siege.
A short seller questioned if Valeant had an accounting issue and he and press reports brought attention to a little-noticed mail-order pharmacy the company was using to increase sales.
The confidence Wall Street had in the operations quickly evaporated. In early 2016, Mr. Ackman faced a choice of whether to sell or double down amid the concerns. Believing the company still had valuable assets and that the market was missing the true story, he joined the board and bought more stock.
Mr. Pearson was fired, and Joseph Papa of rival drug company Perrigo Co. was named CEO. The stock rallied.
But earnings have failed to materialize and some asset sales that have been discussed haven't come through, as Wall Street has turned its attention to Valeant's $30 billion pile of debt. The company doesn't have much debt coming due in the near future.
Valeant is anticipating declines in 2017 revenue and adjusted earnings before interest, taxes, depreciation and amortization compared with last year.
Valeant's operating cash flow worsened last year, compared with a year earlier. The company is counting on increasing sales of irritable-bowel drug Xifaxan, for instance, but it faces heavy competition and a patent challenge.
It has tried to sell Xifaxan and other assets but hasn't been able to seal larger deals so far. The company last week refinanced billions of dollars of its shorter-term debt, buying more time to right itself.