Monday - Sep 25, 2017

Medtronic snaps up Covidien for $42.9bn

Medtronic snaps up Covidien for $42.9bn

In one of the largest takeovers in the healthcare sector this year, Minneapolis based device and equipment manufacturer Medtronic, has agreed to pay out $42.9 billion cash and stock deal for the equity of their Irish rival Covidien.

Industry onlookers predict that the attraction of acquiring Covidien for Medtronic, apart from the excellent range of products and services, is that the acquisition of the equity will allow the US company to transfer their tax base overseas in the process of avoiding the higher corporate tax rates demanded in the United States.

Medtronic, Inc., regarded as being is the world’s fourth largest medical device company, is a Fortune 500 boasting a current market value of $60.5 billion.

Under the terms of the acquisition agreement Medtronic will pay Covidien shareholders $93.22 a share, representing a 50% premium over Friday’s closing stock price of $60.70.

According to Omar Ishrak, chairman and CEO of Medtronic, the combined group would now be undoubted market leaders would have annual combined sales of $27 billion. Both companies are recognized as being pioneers in the development of a neurovascular technology, particularly use in the treatment of Parkinson’s disease as well as strokes.

The acquisition deal, which has been under negotiation for around three months, is one of several mergers and acquisitions, either friendly or hostile, that have taken place or are taking place throughout the upper end of the healthcare industry since the beginning of 2014.

Although the largest was the attempt by pharmaceutical drugs giant Pfizer to acquire their UK rival AstraZeneca for $116 billion, failed to happen, deals that have gone through include between Zimmer and Biomet, and Novartis and GSK. Still in the year is the acquisition of Allergan, by the US-based Valeant who are willing to pay $53 billion for Allergan, best known as makers of Botox.

Even without taking the Medtronic acquisition into account, as well as the Allergan/Valiant deal the value of acquisitions in the healthcare industry so far in 2014 has already passed $160 billion, an increase of close to 50 per cent from the same period last year, with the common denominator, according to those in the know, is the growing desire amongst the major players in the pharmaceutical industry to secure a lower tax rate, through qualifying for inversion.

In order to be eligible for invertion, minimum of 20 percent of the shares in a multinational company must be held outside the US, with the benefits of such a situation being particularly beneficial to American companies, deal with among the highest corporate tax rates in the world.

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