Medtronic (NYSE:MDT) said this week that it will cover nearly $58 million in taxes its pending, $43 billion buyout of Covidien (NYSE:COV) would incur for its top executives.
U.S. tax laws impose a 15% excise tax on stock owned by executives and directors for the 6 months before and after a merger transaction. Although it’s said all along that it will offer an excise tax "gross-up" to cover executives from the tax, Medtronic revealed in an August 26 regulatory filing the details of the coverage.
CEO Omar Ishrak, for example, would owe some $24.8 million in excise taxes; Medtronic’s 4 other named executives would owe a collective $22.3 million. Five other executives not named in the filing would share $10.5 million to cover their excise tax liabilities, while Medtronic’s 10 non-executive directors would share $5.5 million.
The gross-ups for executives aroused the ire of shareholders who will be exposed to capital gains taxes once the deal closes, which is expected to happen later this year or early in 2015. Another tax aspect of the deal, the so-called"inversion" that would see Medtronic reincorporate in Ireland, has the U.S. Congress and even President Barack Obama up in arms. But Medtronic argues that the deal will be a net gain for the U.S. economy, because the inversion frees up billions in cash that it plans to spend here on R&D and acquisitions.
Here’s how the gross-ups break down for Medtronic’s top 5 executives, according to the filing:
Omar Ishrak, chairman & CEO | $24,750,381 |
Gary Ellis, CFO | $7,623,633 |
Christopher O’Connell, restorative therapies group president | $6,685,665 |
Michael Coyle, cardiac & vascular group president | $5,348,569 |
Carol Surface, chief human resources officer | $2,617,141 |
Total for named executives: | $47,025,389 |
5 unnamed executives: | $10,500,000 |
Total for 10 key executives: | $57,525,389 |
Non-executive directors: | $5,500,000 |
TOTAL |
$63,025,389 |