Medtronic (NYSE:MDT) remains unfazed by the U.S. Treasury Dept.’s push to rein in so-called “inversion” mergers, which allow American companies to re-organized under foreign jurisdictions, after the agency issued new rules on the deals this week.
The U.S. government has grappled with a wave of inversions in recent years, including last year’s $50 billion union of Medtronic and Covidien, which was domiciled in Ireland. Reincorporating overseas allows American companies to slash their tax bills even though their core operations and management stay here. Several U.S. presidential candidates, including Republican Donald Trump and Democrat Hillary Clinton, have seized on the issue in their campaigns. President Barack Obama, a Democrat, has called repeatedly for action by the Republican-controlled U.S. Congress on inversions, but lawmakers have done little.
The new Treasury rules impose a 3-year limit on foreign companies “bulking up” on U.S. assets to skirt ownership limits ahead of an inversion. They also tackle “earnings stripping” after inversions, a tactic designed to shrink taxable U.S. profits, and restrict related-party debt for U.S. subsidiaries that’s not used to fund new U.S. investments.
The Treasury Dept. tightened the rules on inversions last November, limiting U.S. acquirers’ ability to set up new foreign parents and “stuff” assets into it to meet existing limits on post-inversion ownership levels. Medtronic, which shrugged off the implications back then, said today that a preliminary review of the newer regulations led it to conclude that they “do not have a material financial impact on any transaction undertaken by the company.
“Medtronic will continue to more fully examine the regulations and will provide appropriate disclosure concerning any potential material impact on the company, if applicable,” the company said. “Medtronic’s acquisition of Covidien, which closed in January 2015, was undertaken for strategic reasons and has created a company that is positively impacting the lives of more patients, in more ways and in more places around the world.”
The new rules have already scuppered 1 mega-deal, the proposed $160 billion combination of Pfizer (NYSE:PFE) and Allergan (NYSE: AGN), triggering a $150 million breakup fee to cover Allergan’s expenses in the deal.
Material from Reuters was used in this report.