Medtronic Inks $16B In Loans For Covidien Purchase

By Jof Enriquez,
Follow me on Twitter @jofenriq

Medtronic Inc. formally secured $16.3 billion in loans to partially finance its $43 billion acquisition of Irish company Covidien by the end of this year or early next year. The merger between the two companies will create the second largest medical device company in the world behind only Johnson & Johnson.

The loan package, first announced in early October, consists of an $11.3 billion bridge loan and a three-year $5 billion loan, according to a recent SEC filing made by Medtronic cited by the Star Tribune. Medtronic also disclosed that the $260 million it earlier estimated to spend for transaction-related costs will not include financing fees and expenses.

Medtronic’s financial restructuring of the deal was prompted by new regulations introduced recently by the U.S. Treasury Department that made it more complicated for companies to perform tax inversions. Medtronic, a manufacturer of heart rhythm devices and neuromodulation products, had originally intended to use $13.5 billion in cash held by its subsidiaries outside the U.S. to help finance the deal, according to a Wall Street Journal article.

After the new tax rules that made it more expensive to acquire Covidien were announced, Medtronic reaffirmed its commitment to complete its merger with Covidien, claiming that the merger provides strategic value.

"This proposed acquisition was conceived and undertaken for strategic reasons and is intended to create a company that can treat more patients, in more ways and in more places around the world," Omar Ishrak, chairman and CEO of Medtronic, said in a prior statement. "We believe our combination will be uniquely positioned to help advance the goals of the Affordable Care Act in the U.S. as well as the objectives of virtually all health systems — to drive access to high-quality, affordable health care for patients around the world."

Financing woes are not the only hurdles getting in the way of the Medtronic-Covidien merger. The Federal Trade Commission has already made a second request for more information to scrutinize the proposed transaction due to antitrust concerns, according to the Star Tribune. Regulatory officials in China have also put the deal under a second round of review under the country’s Anti-Monopoly Law.