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Mallinckrodt Is Just One Of Dennis Kozlowski's Billion Dollar Babies

NEW YORK (TheStreet) -- On the surface the story seemed simple.

Mallinckrodt Pharmaceuticals of Ireland (MNK - Get Report) buys Cadence Pharmaceuticals (CADX) of San Diego for $1.3 billion, mainly to get control of an injectable form of acetaminophen, the main ingredient in Tylenol.

But what started for me as a story about pain relief turned into something else, a lesson in why investors should always pay attention and not give up on a company just because something bad happens which has nothing to do with the underlying business.

Because Mallinckrodt isn't really Irish. The name's German, and the company is Missourian. And this story starts with Dennis Kozlowski, the former Tyco (TYC) CEO who emerged last month after eight years behind bars.

Mallinckrodt, it turns out, is one of Kozlowski's many billion dollar babies. Tyco acquired the company, which is actually based in a suburb of St. Louis, in 2001, when Kozlowski was CEO.

The original Mallinckrodt was a chemical company formed by three brothers, the first to introduce barium sulfate as a contrast medium for x-rays, 100 years ago. The name lives in Boston on a research center backed by one of the founder's descendants, Edward Jr.

Kozlowski built Tyco from a small into a very large conglomerate during the 1990s. At its height, sometime after the Mallinckrodt buy, the company had a book value of more than $110 billion. Its actual value, due to publicity surrounding its CEO, was less than that but Tobias Lefkovitz, now with Citigroup, was, even then, in late 2001, pounding the table for the stock.

Maybe you should have listened to him.

Kozlowski's fall eventually left the company in the hands of CEO Edward Breen, now 57, and it is his breakup of the company that eventually led to today's story. It was Breen who split Tyco in three, in 2007, creating (among other things) Covidien (COV) out of the former Tyco Healthcare.

Covidien is presently worth $31.5 billion. The new Mallinckrodt was Covidien's drug unit before being spun out last year.

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