A Medtronic Covidien acquisition deal has been confirmed by the two companies. Medtronic, a Minnesota-based medical devices multinational is to take over Covidien, also a medical devices company, which is based in Dublin, Ireland, in a $42.9bn cash-and-shares deal.
The cash-and-stock transaction, which was unanimously approved by the board of directors of both companies, is valued at $93.22 per Covidien share, based on Medtronic’s closing stock price on June 13, 2014, of $60.70 per share.
Medtronic Inc., a Fortune 500 firm founded in 1949, is the fourth largest medical devices company in the world. It has a wide portfolio in its six main business units, which develop and produce devices and therapies to treat over 30 chronic diseases, including diabetes, chronic pain, obesity, Down syndrome, urinary incontinence, Parkinson’s disease and heart failure.
Covidien became a PLC (public limited company, an independent publicly traded company) after Tyco International spun it off in 2007.
A tax-inversion move for Medtronic
Medtronic’s aim in acquiring Covidien is to move its headquarters from the US to Ireland, where corporate tax is considerably lower. Corporate tax in the United States is 35%, the highest among the advanced economies, compared to Ireland’s 12.5%.
On completion of the deal, the new entity will be called Medtronic PLC. Even though the entity will be registered in Ireland, its operational head office will remain in Minneapolis, where it has over 8,000 employees.
According to Medtronic, the merger is forecast to save the company at least $850 million annually by the end of 2018. The savings will come from its manufacturing and supply chain operations, as well as enhancing the combined global back-office.
The combined company’s new financial structure will allow it to commit to $10 billion in additional technology investments over the next ten years “above and beyond Medtronic’s and Covidien’s existing plans,” Medtronic said.
Medtronic PLC will be a world leader
Medtronic said that once the transaction is completed, it will have advanced its position considerably as the globe’s leading medical technology and services company. The merged company will have a diversified growth profile, deeper geographical reach, a comprehensive product portfolio, and 87,000 workers in over 150 nations.
Medtronic’s Chairman and CEO, Omar Ishrak, who will lead the combined company, said:
“We are excited to reach this agreement with Covidien, which further advances our mission to alleviate pain, restore health and extend life for patients around the world. This acquisition will allow Medtronic to reach more patients, in more ways and in more places.”
“Our expertise and portfolio of services will allow us to serve our customers more efficiently and better address the demands of the current healthcare marketplace. We also look forward to welcoming the Covidien team to Medtronic and working together to improve healthcare outcomes globally.”
Covidien’s Chairman and CEO, José E. Almeida, said:
“Covidien and Medtronic, when combined, will provide patients, physicians and hospitals with a compelling portfolio of offerings that will help improve care and surgical performance. This transaction provides our shareholders with immediate value and the opportunity to participate in the significant upside potential of the combined organization.”
“I’d like to thank our 38,000 employees whose hard work and dedication has enabled Covidien to deliver innovative health solutions that improve patient outcomes.”
Investor and regulatory approval required
The two companies, which expect the deal to be completed by the end of 2015, say that it is subject to approval from:
- shareholders,
- regulatory bodies in the European Union, the United States, China, and certain other countries.
High US corporate tax
America’s high corporate tax rates have motivated its domestic multinationals to seek out foreign companies, acquire them and move their headquarters abroad.
Pfizer, the world’s largest drugmaker, tried unsuccessfully to buy Britain’s second largest pharmaceutical company, AstraZeneca (AZ). AZ managed to resist months of new and improved offers until Pfizer gave up. The UK’s corporate tax rate is 21% compared to the US’ 35%.
Including Medtronic’s acquisition, the value of deals in the healthcare industry has already exceeded $160 billion this year, nearly 50% more than in 2013 and triple that of 2012.
According to the Council of Foreign Relations Scorecard, the US corporate tax system encourages its domestic companies to keep their money abroad. Even though the US has a higher tax rate than nearly all of its rival nations, it ends up collecting proportionally less money.
Edward Alden, Director of Renewing America, and Associate Director Rebecca Strauss:
“While the U.S. government has stood still on corporate tax reform, most advanced countries have been lowering corporate tax rates, reducing tax breaks, and changing how they tax foreign profits.”
Google’s $30 billion acquisition fund is to stay abroad, the Internet giant told regulators in May. By keeping its foreign-earned funds overseas, the company avoids paying US taxes on it.
