MINNEAPOLIS – Medtronic Inc., the second-largest maker of medical devices, agreed to buy Covidien PLC for $42.9 billion in cash and stock as it transforms into a broader-based company bolstered by new tax advantages.
Medtronic will pay the equivalent of $93.22 for each share of Dublin-based Covidien, or about 29 percent more than Covidien’s New York closing price of $72.02 on June 13, the companies said Sunday in a statement. The combined company, called Medtronic PLC, will be based for tax purposes in Ireland.
Covidien’s U.S. headquarters and corporate offices are currently based in Mansfield, Mass.
The deal is Medtronic’s largest. It gives the Minneapolis-based company Covidien’s portfolio of hospital supplies, from surgical staplers to ventilators, adding size and scope to help it compete with Johnson & Johnson, the No. 1 medical device company. At the same time, use of Covidien’s Irish address may free almost $14 billion in cash Medtronic now holds overseas to avoid being taxed on it under U.S. law.
The primary motivation is “strategic and operational alignment,” Medtronic CEO Omar Ishrak said in a telephone interview Sunday. “It will drive better value for patients and customers around the world.”
Medtronic would have the opportunity to walk away from the deal if U.S. tax law changes, the company said Monday in a filing with the Securities and Exchange Commission. The tax clause would also come into play if both houses of the U.S. Congress pass legislation, even if it’s not immediately signed by the president, that would treat the combined company as an American corporation for federal tax purposes, Medtronic said.
Covidien rose 19 percent to $85.94 at 12:13 p.m. New York time, after gaining 22 percent in the past 12 months through June 13. Medtronic fell 2.6 percent to $59.14, after increasing 15 percent in the past year through June 13.
Medtronic’s tax rate will remain about the same, even after the company redomiciles in Dublin, Ishrak said. The advantage gained in the deal is that Medtronic will be able to better use profits it made outside of the U.S., which it plans to invest back into the industry, according to Ishrak.