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Covidien, Medtronic shares jump on affirmation of $43B merger

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Covidien, Medtronic shares jump on affirmation of $43B merger

Shares of Medtronic (NYSE:MDT) and Covidien (NYSE:COV) both closed up yesterday after Medtronic affirmed its intention to consummate a $43 billion union with Covidien.

In a regulatory filing yesterday, Medtronic said it now expects the deal to close late in the 4th quarter or early in 2015. Investors reacted by sending COV shares up 4.5% to an $89.25 close yesterday; MDT shares closed up 1.8% at $64.98 each.

Medtronic also said that it’s board still supports the deal despite stricter U.S. Treasury rules on inversion deals, in which a U.S.-based company lowers its overall tax base by acquiring a foreign-based firm like Covidien, which is domiciled in Ireland but run from Mansfield, Mass. Medtronic responded by saying it would use external debt rather than the billions it has in offshore cash to finance the deal.

"In arriving at its determination on Oct. 2, 2014 to approve Medtronic’s use of external indebtedness to finance the cash component of the scheme consideration and to affirm its continued support of the transaction, the Medtronic board of directors consulted with Medtronic’s management, legal advisors and financial advisor, reviewed a significant amount of information, considered a number of factors in its deliberations and concluded that the transaction remained likely to result in significant strategic and financial benefits to Medtronic and its shareholders," according to the filing.

Investors yesterday were also likely encouraged by approval from Goldman Sachs and Perrella Weinberg of the new financing structure.

Medtronic also said it’s likely that Covidien will divest some businesses to satisfy U.S. anti-trust regulators (Japan, Russia, Israel and Turkey have already approved the merger, according to the filing). The divestitures could cost as much as $125 million in impairment charges, Medtronic said.

In a separate filing, Covidien president Bryan Hanson said he named Steve Blazejewski as president of the company’s medical supplies, respiratory & monitoring and venous solutions business. Hanson also named Chris Barry as president of Covidien’s surgical businesses.

Covidien said it also named members to a pair of new integration teams, an HR integration function group led by Covidien HR vice president Sandra McNeill and an organization, talent & culture team led by Kate Hoepfner-Karle, a member of both the integration management office and the leader of the new OTC team.

 

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