Jim Cramer, portfolio manager of Action Alerts PLUS, and research director Jack Mohr sat down to talk about their ‘favorite company in the portfolio:’ Allergan. Allergan made headlines this week after the pharmaceutical company sold off its generics business to Israeli company Teva Pharmaceuticals in a ‘transformative’ deal that totaled $40.5 billion. Cramer knows Allergan’s CEO Brenton Saunders and says that Saunders ‘recognizes that with the coming consolidations that… they will then become much tougher on the generic industry.’ Cramer says that they will not be as tough on the proprietary drug however because ‘there’s not much you can do’ since ‘there is no other offset.’ Cramer says that at $40.5 billion Allergan got rid of its generics business, which historically has had margin problems, for seventeen times EBITDA. The deal allows Allergan to secure its balance sheet by offsetting the $40 billion in debt owned by the company. Cramer says that Allergan was also able to buy a stake in Teva in case the Teva stock were to go up, which ended up being the case. Cramer says that overall, the Teva deal was ‘a huge win for Brenton Saunders.’ Analysts are putting $400 price targets on Allergan and Cramer says that these targets ‘are very realistic’ and wants people ‘to buy Allergan.’
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