June 14, 2014 6:50 pm

Medtronic set to acquire rival medical device maker Covidien

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Medtronic©Bloomberg

Medtronic, the medical device company, is set to merge with rival Covidien in a deal valued at close to $50bn that marks the latest example of a US company using a merger to move its tax domicile abroad to shelter it from the country’s corporate tax rates.

A deal valued at between $45bn and $50bn could be announced as soon as Monday, according to people familiar with the talks, but one person cautioned that a deal may still fall apart.

A merger with Ireland-based Covidien would allow Medtronic to take advantage of a so-called tax inversion by moving its headquarters to a European country, which has lower tax rate than the US.

As of Friday’s close, Covidien had a market capitalisation of $32.5bn. It became a publicly traded company in 2007 after it was spun off from Tyco International. Medtronic had a market capitalisation of $60.5bn.

To qualify for the inversion, at least 20 per of the shares in the combined company would need to be held outside the US, meaning Medtronic, which makes pacemakers and spine implants, would need to fund a large proportion of any bid with its own stock.

Medtronic had been rumoured to be evaluating inversion options in recent weeks after it emerged that its US rival Stryker had been preparing a bid for UK-based Smith & Nephew. Another US rival Zimmer, the maker of joint replacement technology, acquired Biomet in a blockbuster deal worth $13.4bn.

The pharmaceutical, medical device and healthcare sector has been rife with deals and deal talks as companies race to take advantage of inversions amid fear that the window to strike such deals could close if the US Congress takes action to reform US tax laws.

The companies could not be immediately reached for comment. The Wall Street Journal first reported the news.

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