GO
Loading...

Cramer: Allergan reveals new tactic to stoke value

(Click for video linked to a searchable transcript of this Mad Money segment)

In his quest to fend off a hostile takeover attempt, has Allergan CEO David Pyott got something powerful up his sleeve?

On "Mad Money" Pyott said the company was about to introduce a major restructuring that could boost shareholder value. "We're taking a deep look to see where we can do some trimming," Pyott said, adding specifics would be outlined in the company's earnings announcement in the weeks ahead. "The only thing I care about is the creation of value for shareholders."

Allergan Chief Executive David Pyott
Reuters
Allergan Chief Executive David Pyott

That creation of value is a key issue for Allergan, whose shares have surged since late spring, when Valeant made its first of three takeover offers. However, Allergan has refused those offers, in part, arguing that the Valeant business model will diminish value, not enhance it.

"Valeant is a classic roll-up: they acquire other drug companies, then gut any unnecessary expenses to boost profits, which in many cases includes slashing the research and development budget," Cramer explained.

By contrast, Allergan believes in increasing R&D to fuel powerful long-term growth.

"We question the sustainability of the Valeant business model in its entirety," Pyott added. "They would cut R&D 90 percent. That isn't value creation it's value reduction."

And Pyott suggested that even if Valeant were to walk away, shares should hold most of their recent 40 percent advance. "What we've been doing is raising the floor of Allergan as a standalone entity."

-----------------------------------------------------------
Read more from Mad Money with Jim Cramer
3 stocks with big reward potential
Cramer; Don't let these stocks fool you
Cramer: This stock a real bargain
-----------------------------------------------------------

That is, Pyott believes that due to the strength of Allergan pipeline as well as the forthcoming value creation to be announced later this month, current share price is justified and therefore should be sustainable.

"I know the market is waiting to see what we put on the table when we announce earnings. Hopefully they will applaud," Pyott said.

In an interview with the Wall Street Journal, Pyott also indicated his company was looking at potential acquisitions, although he declined to get into specifics.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com

Contact Mad Money

  • Showtimes

    U.S.
    Monday - Friday 6p ET
    Australia
    Saturday 8a, 1p, 7p SYD
    Sunday 12a, 1a, 8a, 7p SYD
    New Zealand
    Saturday 10a, 3p, 9p NZ
    Sunday 2a, 3a, 10a, 9p NZ
  • Jim Cramer is host of CNBC's "Mad Money" and co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street."

Mad Money Features

  • Grab the latest CNBC gear from the NBCUniversal Store!

  • Get a behind-the-scenes look at how Cramer formulates his investment advice. "Inside the Madness" is a column, which features e-mails and more with Cramer and his researcher Nicole Urken.

  • You’ve always wanted to hit the “Hallelujah!” button. Here’s your chance.

Mad Money Moments

Cramer's New Book