Medtronic (NYSE:MDT) said yesterday that it agreed to acquire Covidien (NYSE:COV) in a cash-and-stock deal worth nearly $43 billion.
The buyout, a so-called "inversion" deal, will allow Medtronic to lower its overall tax rate by re-incorporating in Ireland. But Medtronic CEO Omar Ishrak said the main drivers were strategic.
"The real purpose of this, in the end, is strategic, both in the intermediate term and the long term," Ishrak told Reuters. "It is good for the U.S. in that we will make more investment in U.S. technologies, which previously we could not."
The acquisition adds Dublin- and Mansfield, Mass.-based Covidien’s endoscopy, vascular, respiratory and patient care businesses to Medtronic’s core cardiac rhythm management, spine and diabetes units.
Terms of the deal, expected to close during the 4th quarter or in early 2015, call for Medtronic to pay $93.22 per share for Covidien. Each COV share will be converted to the right for $35.19 in cash and 0.956 MDT shares. Medtronic said that equates to a 29% premium on COV’s $75.02 closing price June 13. The deal will leave Covidien stockholders with about a 30% stake in Medtronic, the world’s largest-pure-play medical device company.
"We are excited to reach this agreement with Covidien, which further advances our mission to alleviate pain, restore health and extend life for patients around the world," Medtronic CEO Omar Ishrak said in prepared remarks. "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. We also look forward to welcoming the Covidien team to Medtronic and working together to improve healthcare outcomes globally."
"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," added Covidien CEO José Almeida. "This transaction provides our shareholders with immediate value and the opportunity to participate in the significant upside potential of the combined organization. I’d like to thank our 38,000 employees whose hard work and dedication has enabled Covidien to deliver innovative health solutions that improve patient outcomes."
Medtronic said it expects the deal to add to adjusted earnings in fiscal 2016, fueled by an estimated $850 million in annual pre-tax savings. If consummated, the combination would create a Minneapolis-based behemoth with about 87,000 employees worldwide and annual sales of some $27 billion.
The company also pledged to spend an extra $10 billion over a decade on "technology investments" in the U.S. "in areas such as early stage venture capital investments, acquisitions and R&D," according to a press release.
"The medical technology industry is critical to the U.S. economy, and we will continue to invest and innovate and create well-paying jobs," Ishrak said in a statement. "Medtronic has consistently been the leading innovator and investor in U.S. medtech, and this combination will allow us to accelerate those investments. These investments ultimately produce new therapy and treatment options that improve or save lives for millions of people around the world."
