Medtronic chief says Covidien deal good for US economy

Medtronic chief executive Omar Ishrak has defended his company's plan to acquire Dublin-based Covidien in a so-called inversion deal, saying the medical device maker will be able to create more US jobs while still paying substantial taxes once the transaction closes.

Medtronic, which announced its $42.9 billion acquisition of Covidien in June, is among a number of US corporations that have unveiled inversion deals in recent months to establish a tax domicile abroad.

President Barack Obama has criticised the strategy as a rush by companies to avoid US corporate taxes and the administration is weighing executive actions.

Medtronic has maintained that the main rationale for the deal is strategic, combining the two companies' complementary product lines and will free up cash generated overseas for reinvestment in the United States.

Remarks

Mr Ishrak, in remarks during the company’s earnings conference call yesterday, said Medtronic expected to invest “much more aggressively” in the US after the deal closed, resulting in accelerated creation of high-paying US medical technology jobs.

“Acquiring Covidien is good for Medtronic, for our shareholders, for patients, for the medtech industry and ultimately good for the US economy,” he said.

In an interview, Mr Ishrak said the company’s effective tax rate on global income would fall to about 16-17 per cent after the deal from 18-19 per cent now.

Medtronic reported the strongest quarterly US sales growth for its medical devices in five years and said it was committed to completing the Covidien acquisition by the end of the year or early 2015. The Minneapolis-based company also confirmed its full-year profit and revenue outlook.

Net earnings fell to $871 million, or 87 cents a share, in the first quarter ended July 25 from $953 million, or 93 cents a share, a year earlier.

Revenue rose 4 per cent to $4.27 billion, while analysts had forecast $4.25 billions.– (Reuters)