logo-loader

Medtronic to buy Covidien for $42.9 bln, move headquarters to Ireland

Published: 09:01 16 Jun 2014 EDT

acquisition_deal_350_539eeb36548fc

Medtronic Inc. (NYSE:MDT), the second-largest maker of medical devices, advanced in pre-market trade after agreeing to buy Covidien Plc (NYSE:COV) for $42.9 billion in cash and stock as it shifts its tax base overseas to avoid higher corporate tax rates.

Medtronic rose 7 percent to $64.97 at 8:37 a.m. in New York, while Covidien leaped to 30 percent to $94.10.

Medtronic Inc. will pay the equivalent of $93.22 for each share of Dublin-based Covidien, or about 29 percent more than Covidien’s New York closing price of $72.02 on June 13, the companies said in a statement yesterday. The combined company, called Medtronic Plc, will be based for tax purposes in Ireland.

When the deal is complete, each outstanding ordinary share of Covidien will convert into a right to receive $35.19 in cash and 0.956 of an ordinary share of Medtronic Plc. 

The purchase is the largest ever for Medtronic. It gives the Minneapolis-based company access to Covidien’s portfolio of hospital supplies, from surgical staplers to ventilators, and adds size and scope that may allow it to better compete with Johnson & Johnson (NYSE:JNJ), the world's largest medical device company. 

At the same time, use of Covidien’s Irish address could free almost $14 billion in cash Medtronic now holds overseas as a way to avoid being taxed on it under U.S. laws.

The U.S. corporate tax rate is 35 percent, among the world’s highest, while in Ireland it is just 12.5 percent.

The combination, which will leave Covidien shareholders owning about 30 percent of the combined company, is expected to result in at least $850 million of annual pre-tax cost synergies by the end of fiscal year 2018. 

Acquisitions of companies aimed at lowering corporate tax rates, known as inversion, are becoming more common. 

Some U.S. lawmakers are concerned that the deals erode government revenue by giving corporations another tax-avoiding loophole. Two bills in the U.S. Congress and a White House proposal would make inversions harder to do, but neither has gained much traction. 

Earlier this year, Pfizer Inc. (NYSE:PFE), the largest U.S. drugmaker, briefly proposed acquiring London-based AstraZeneca Plc (NYSE:AZN) in part to get a U.K. address, a move that might have cut its tax bills by as much as $1 billion a year. 

Medtronic said it would keep its operational headquarters in Minneapolis and pledged $10 billion in U.S. technology investments over the next 10 years.

The acquisition bid comes as both Medtronic and Covidien are dealing with stalled sales growth. Covidien, with a market capitalization of $32 billion based on its June 13 closing stock price, generated $10.2 billion in fiscal year 2013, roughly the same as five years earlier. Medtronic, with a market value of $61 billion and revenue of $17 billion, has been growing in the low single digits.

The deal is expected to close in the fourth quarter of 2014 or early 2015, Medtronic said.

Medtronic received financial advice from Perella Weinberg Partners LP, while Goldman Sachs & Co advised Covidien. Bank of America Merrill Lynch provided committed financing for the transaction. 

 

 

Australian Strategic Materials signs US$600 million LoI

Rowena Smith, CEO and managing director of Australian Strategic Materials Ltd (ASX:ASM, OTC:ASMMF), joins Jonathan Jackson in the Proactive studio to discuss the company’ s Dubbo Project, in Central West New South Wales. This project aims to extract and process critical minerals and rare earth...

4 hours, 27 minutes ago