Tax concerns secondary in medical mega-deal

BY Matt Atkins

The latest in a string of healthcare mega-deals has been driven by potential synergies rather than tax considerations, according to executives behind the transaction.

On 15 June, US medical device maker Medtronic Inc announced it had agreed to acquire Ireland’s Covidien Plc for $42.9bn in cash and stock. The purchase will see Medtronic move its executive base to Ireland, reducing its overall tax burden. However, a complimentary strategy with Covidien on medical technology has motivated the deal, rather than tax savings, says Medronic CEO, Omar Ishrak. “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.”

The acquisition of Covidien will significantly advance Medtronic’s position as a leader in medical technology and services. The combined company will have a comprehensive product portfolio, a diversified growth profile and broad geographic reach, with 87,000 employees in more than 150 countries. The deal will create a close competitor in size to the medical device business of industry leader Johnson & Johnson Co.

The deal has raised concerns surrounding the number of US firms striking deals that slash their tax bills. While historically quite rare, the acquisition of companies aimed at lowering corporate tax rates is becoming increasingly common. Pfizer’s recently failed bid for AstraZeneca, for instance, has served to refocus attention on so called ‘inversions’. Currently, two Congress bills, along with a White House proposal, are aiming to make the practice more difficult, though neither has gained much traction. This could change if further US firms try to exploit the loophole.

While the deal has sparked debate for all the wrong reasons, it has been welcomed by the Irish firm. “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,” said José E. Almeida, Covidien's chairman, president and chief executive. “This transaction provides our shareholders with immediate value and the opportunity to participate in the significant upside potential of the combined organisation.”

The transaction has been approved by the boards of both companies.

Press release: Medtronic to Acquire Covidien for $42.9 billion in Cash and Stock

©2001-2016 Financier Worldwide Ltd. All rights reserved.