Medtronic paid $50 billion to acquire Covidien in the biggest medical device acquisition ever. But shortly after the deal was announced during the summer of 2014, shareholder Lewis Merenstein sued in Hennepin County District Court, arguing that the proposed merger’s conversion of Medtronic stock into the new stock of the combined company “will result in a substantial loss to Medtronic shareholders” and seeking class-action status.
The deal saw Medtronic pay $93.22 per share for Covidien, with COV share converted to the right for $35.19 in cash and 0.956 MDT shares, leaving Covidien stockholders with about a 30% stake in Medtronic, the world’s largest-pure-play medical device company.
“Medtronic stockholders will be forced to pay taxes on any gains in Medtronic stock,” according to Merenstein’s complaint, which seeks class action status. “But because the sale does not generate cash proceeds that would allow stockholders to pay the taxes, Medtronic stockholders who have held the stock for over a year could see federal tax rates of 15% to 30% on the gain.”
Yesterday a 3-judge panel of the Minnesota Appeals Court ruled that the lower court should not have tossed 11 of the 12 claims in the Merenstein lawsuit and remanding the case back to the Hennepin County District Court.
Medtronic plans to appeal the decision to the Minnesota Supreme Court, spokesman Fernando Vivanco told the Minneapolis Star-Tribune via e-mail.
“We respectfully disagree with the appellate court’s decision and believe it is inconsistent with clear legal precedent,” Vivanco wrote.
Merenstein lawyer Vernon Vander Weide declined to comment on whether the case could lead to a dissolution of the merger, noting that it’s too early to estimate damages, the newspaper reported.