FTC wants more data on Medtronic-Covidien deal, but analysts aren't worried

August 7, 2014 by Arezu Sarvestani

Despite the furor on Capitol Hill, lawmakers aren't likely to produce reform that will hinder Medtronic's $43 billion acquisition of Covidien, according to Morgan Stanley analysts.

Analyst report: Dems can't stop Medtronic-Covidien merger

The anti-inversion commotion in Washington, D.C., is "more bark than bite" and unlikely to turn into reform in time to damage Medtronic's (NYSE:MDT) $43 billion deal with Covidien (NYSE:COV), according to analysts with Morgan Stanley.

Democrats have won support from the White House for efforts to penalize companies that relocate their corporate headquarters outside of the U.S. in order to benefit from lower tax rates, but Republicans won't be so eager to play along, the analysts wrote.

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"It remains unlikely that a legislative fix will be possible before the next presidential cycle, as Republicans are unlikely to agree to inversion reform without a broader overhaul of the corporate tax code, which in turn would likely be unpalatable for Democrats," according to analysts David Lewis and James Francescone. "This dynamic may be why Democrats have tried to enlist greater support from the White House and the Treasury. These recent hints of executive actions may have more bark than bite, as significant changes to transactional tax treatment may require statutory revisions beyond the rule-making discretion of the IRS or the Treasury."

That's good news for the companies, which just revealed in a regulatory filing that the Federal Trade Commission has requested additional information and documentation related to the merger. The device makers don't think the 2nd request will delay their deal, which is expected to close late in Q4 2014 or early in 2015.