Print““The medical technology industry is critical to the U.S. economy, and we will continue to invest and innovate and create well-paying jobs, says Omar Ishrak, CEO of Medtronic. ”
Medical device powerhouse Medtronic said it will acquire rival Irish device maker Covidien for $42.9 billion in cash and stock in a deal that will significantly advance Medtronic’s position as the world’s biggest medical technology and services company. When the transaction is completed, Medtronic will move its headquarters to Ireland, succeeding with its inversion deal where Pfizer failed with AstraZeneca. And because the merger will result in cost synergies, in other words cutting duplicative costs and employees, the combined company will invest $10 billion over the next 10 years in U.S. medical technology innovation.
The deal, approved by the boards of both companies, creates a combined behemoth with a comprehensive product portfolio, a diversified growth profile, and broad geographic reach with 87,000 employees in more than 150 countries.
“This acquisition will allow Medtronic to reach more patients, in more ways and in more places,” says Omar Ishrak, chairman and CEO of Medtronic. “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.”
It will also allow Medtronic to reap the tax benefits of relocating its corporate headquarters to Ireland where corporate tax rates are much lower and to make better use of profits earned overseas. Medtronic joins fellow life sciences companies that have completed tax-inversion deals, including Endo Health Solutions’ acquisition of Paladin Labs, Perrigo’s deal for Elan, Actavis’ purchase of Warner-Chilcott, Jazz Pharmaceuticals’ Azur Pharma buy, and Valeant Pharmaceuticals’ deal for Biovail.
Under the terms of the deal, each outstanding ordinary share of Covidien will be converted into the right to receive $35.19 in cash and 0.956 of an ordinary share of Medtronic plc, the combined company. The deal represents a premium of 29 percent to Covidien’s closing stock price on June 13, the last trading day prior to the announcement. Covidien shareholders will own approximately 30 percent of the combined company.
The acquisition of Covidien provides Medtronic with a complementary and broader portfolio of products and services, and greater breadth across clinical areas and major disease states impacting patients and healthcare costs around the world. It also increases Medtronic’s global footprint as the combined company will have revenues of $13 billion from outside the United States, with $3.7 billion from emerging markets.
“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,” says José Almeida, chairman, president and CEO of Covidien.
It also gives Medtronic greater control over pricing and services offered and will allow it to offer products that the company says will “create more value in healthcare systems around the world—in various delivery and payment systems—by combining products, services and insights into solutions aimed at expanding access and reducing healthcare costs.
Medtronic says it will also stay committed to investing in U.S. medical technology innovation, committing $10 billion in technology investments over the next 10 years in areas such as early stage venture capital investments, acquisitions and R&D in the United States.
“The medical technology industry is critical to the U.S. economy, and we will continue to invest and innovate and create well-paying jobs,” says Ishrak.
The deal is expected to result in at least $850 of annual pre-tax cost synergies by the end of fiscal year 2018 and is expected to be accretive to Medtronic's cash earnings in FY 2016, the first full fiscal year, and significantly accretive thereafter. It is expected to close in the fourth calendar quarter of 2014 or early 2015. The combined company, Medtronic plc will be headquartered in Ireland, where Covidien’s current headquarters are located, and will be lead by Medtronic CO Omar Ishrak.
June 19, 2014
http://www.burrillreport.com/article-medtronic_to_buy_covidien_for_42_9_billion.html
