Medtronic buys Covidien for €31.6bn
Medical device giant to relocate HQ here in latest attempt at ‘inversion’ by US firm
A Medtronic worker assembles a device that is inserted into a pacemaker. Photograph: Munshi Ahmed/Bloomberg
The world’s second-largest medical device maker will pay $35.19 in cash and 0.956 of a share in Medtronic for each share in Dublin-headquartered Covidien. That represents a total value of $93.22 a share – a 29 per cent premium to the level at which Covidien’s shares closed Friday. Medtronic will also assume $5 billion in debt.
Covidien shareholders will hold roughly 30 per cent of the enlarged company, which, upon completion, will employ 87,000 people across 150 countries, including 3,400 here.
The deal marks the latest attempt at “inversion” where US companies, especially in the healthcare sector, have sought to relocate to countries will lower corporate tax rates
In an effort to address criticism of the move, Medtronic said it would invest $10 billion in technology investments in America over the next decade, including for research and development and acquisitions.
“Although this is an inversion deal, it’s not about lowering tax rates,” said chief executive Omar Ishrak.
The transaction is also seen as the latest example of medical device makers joining forces in response to the US government’s overhaul of healthcare. Such companies have been especially concerned by hospitals’ moves to cut costs.
A third factor is Covidien’s stronger presence in faster growing emerging markets.
While Medtronic will have its corporate headquarters in Ireland, it will continue to run operations from its Minneapolis base, much like Irish- domiciled Covidien did from Massachusetts before the merger.
However, Covidien’s Irish workforce will take some comfort from Medtronic’s recent focus on surgical products, the focus of the Irish operations.
Medtronic said it had identified about $850 million in potential cost savings “achievable” over two to three years
Chief financial officer Gary Ellis said the cost savings would come initially from combining administrative and back-office operations and later from the consolidation of manufacturing plants and IT systems around the globe.
Covidien employs 1,400 people in Ireland across five plants. Most of the staff are engaged in manufacturing at Galway, Tullamore and Athlone, though it runs a number of pan-European operations from Dublin.
The Athlone plant is a centre of excellence for airways products and, with 500 staff, is a major employer in the midlands. Galway’s 300 staff focus on ventilators and oxygen therapy devices while the 400 people in Tullamore make suction, feeding sets and drainage tubes.