Cramer explained that Covidian's medical device business has been dragged down by the pharma division, but will almost instantly get a higher multiple as a simpler, easier-to-understand entity. But that doesn't mean shareholders should sell Mallinckrodt on day one, noted Cramer. When Abbott Laboratories (ABT) split itself into two, both halves soared. Cramer expects the same to happen with Covidian.
Covidian is currently a $66 stock that sells at 15.7 times earnings, noted Cramer. After the split, the two companies could be worth $74, or 12% more than they are today.
Once Mallinckrodt hits $48 a share, however, Cramer said he'd be a seller of the stock, as the newly minted drug company will be faced with more generic competition starting in 2014.
For "Speculation Friday," Cramer turned the spotlight onto W.R. Grace (GRA), a company whose shares have risen 23% so far this year despite the fact that it's been in bankruptcy since 2011.Cramer explained that Grace was forced into bankruptcy due to asbestos litigation that is now in its final stages. The bankruptcy is a blessing in disguise, however, because many mutual funds aren't allowed to own companies in bankruptcy. That means when Grace emerges as a new company in the fourth quarter there should be a ton of pent-up demand for the stock. W.R. Grace is a specialty chemical maker made up of three divisions, Cramer continued. Its catalyst technology division makes additives for the oil and refining business as well as for chemical makers. It also has a construction products business and a materials technology segment that is similar to PPG (PPG) in making coatings. Grace has always been a best of breed company with tons of pricing power, said Cramer. When it comes out of bankruptcy free of litigation, it will sport a lean balance sheet as well as the ability to offer shareholders a dividend. How much is W.R. Grace worth? Cramer said adding up all the parts and subtracting the debt yields an $8 billion company, or $105 a share, which is a full 26% higher than where it trades today. Cramer said he expects shares to reach their full potential in just months after the bankruptcy is behind them.
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