News Feature | January 8, 2015

Medtronic, Covidien Shareholders Approve Merger

By Jof Enriquez,
Follow me on Twitter @jofenriq

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Recently, shareholders of both Medtronic and Covidien approved the proposed merger between the two medtech giants. The deal is on track to close by late January or early February, pending an approval from the High Court of Ireland.

During a meeting in Minneapolis, a majority 72.5 percent of Medtronic shareholders voted in favor of the deal, just hours after Covidien shareholders approved the deal in a separate meeting in Dublin, according to a report from the Star Tribune.

“The completion of the acquisition of Covidien by Medtronic will usher in a historic new chapter in the history of Medtronic and will help us advance our long-standing mission of alleviating pain, restoring health and extending life for patients all over the world,” Medtronic chief executive Omar Ishrak told shareholders after votes were tallied, according to the Tribune report.

Per the Tribune, Medtronic will pay $35.19 per share and exchange each Covidien share for 0.956 shares of the new company, representing a premium of nearly 30 percent over Covidien’s stock price before the deal was announced. When announced in June last year, the deal was believed to be worth nearly $43 billion. However, the value of the transaction has since risen to about $48 billion.

The transaction allows Medtronic to pay lower corporate taxes by moving its tax base to Ireland, all while remaining headquartered in Minnesota. The deal has been derided by U.S. government officials, legislators, and some company shareholders. But Ishrak, who has been defending the merits of the deal since its announcement, reiterated one benefit for the company during the shareholder meeting.

“The deal allows Medtronic to invest overseas profits in the U.S. by reducing the company's U.S. tax obligation,” Ishrak said during the meeting, according to an MPR News article. “Through this transaction we are able to afford to bring back $10 billion. If we didn’t do that transaction, we wouldn’t be able to do that.”

The company also claims that the deal will create 1,000 more jobs in Minnesota.

“We look at the rules as they stand today. And it's the best thing to do,” Ishrak added, according to the MPR article.

Existing tax rules allow U.S. companies to perform tax inversions to lower their tax liabilities. However, the proliferation of such deals in the medtech sector prompted the U.S. Treasury Department to introduce measures that will curtail such practices. 

Medtronic, however, stated that despite the new tax rules, it is committed to merge with Covidien in a strategic move to become “the world’s premier medical technology and services company,” according to a previous Med Device Online story.

The company has now cleared the major hurdles that could have derailed the deal to buy Covidien. It recently received all the necessary antitrust approvals, negotiated a settlement of a shareholders suit, and secured $16 billion worth of loans to partially fund the deal. An approval from the High Court of Ireland is expected in the next four or five weeks, per MPR News.