Medtronic-Covidien Merger Receives Regulatory Approval From China, South Korea

By Jof Enriquez,
Follow me on Twitter @jofenriq

Medtronic Inc. recently announced that regulatory authorities in China and South Korea have given clearances for the company to proceed with its proposed $43 billion merger with Covidien, just several days after U.S. and Canadian antitrust bodies gave their approval.

In a short statement issued recently, the Minneapolis-based medical device manufacturer said that the approvals from both the Chinese Ministry of Commerce and the South Korean Fair Trade Commission meant that “all necessary antitrust clearances have now been obtained” for the Covidien acquisition to be completed as scheduled by early next year.

The announcement came just days after the U.S. Federal Trade Commission (FTC), the European Commission, and the Canadian Competition Bureau consented to the so-called tax inversion that will move Medtronic’s domicile from the U.S. to Ireland in order to take advantage of lower corporate taxes. Company executives have described the transaction as a strategic move amidst criticism from the U.S. government, which introduced tweaks to existing tax rules that were meant to curtail tax inversions.

The tax changes made it more complicated for Medtronic to finance the deal. However, the company recently completed a $17 billion corporate bond sale — the largest of 2014 — that will help it finance its acquisition of Covidien, a manufacturer of hospital and surgical products. The company also earlier secured an $11.3 billion bridge loan and a 3-year, $5 billion loan for the cash portion of the deal.  

But additional reforms to the U.S. tax code are unlikely to happen anytime soon, meaning that the Medtronic-Covidien merger should stay on track, according to one analyst.

“We see less than a 5% chance there will be any change to the U.S. tax code between now and the close of the merger in the current lame duck congressional session and zero interest from the Republicans in cooperating with Democrats on this issue,” Sean McDermott, an analyst at Evercore/ISI group, told the Wall Street Journal.

With the required funding in order and all antitrust bodies giving their thumbs up, the merger is likely to proceed without further hitches. Shareholders are meeting on January 6, 2015 to vote on the merger, and there are no indications that they will vote down the transaction, according to the WSJ. Other inversion plans by large U.S. companies have either been aborted or delayed, but Medtronic’s deal is getting more likely to close as planned in early January.