Medtronic, the US medical devices firm, agreed on
Sunday to buy rival Covidien that is Irish for tax purposes, for $42.9bn in the
latest moves by a healthcare company to use a so-called inversion to cut its US
corporate taxes. The combined group will have 87,000 staff and will add to
the distortions in recent years in Ireland's GNP (gross national product)
Covidien is run from Mansfield, Massachusetts but
has been based in Ireland for tax purposes since 2009 and to the European
Commission, it is one of Ireland's biggest spenders on research and development
- in reality most of its R&D is done elsewhere.
Covidien had a market capitalisation of $32bn at
its Friday closing price and Medtronic had a market value of $61bn.
Covidien reported revenues of $10.2bn in fiscal
year 2013, almost flat compared with five years go, while Medtronic had revenues
The existing rules for Medtronic requires a US
company to have 20% of its shares held by foreign owners before it can shift its
tax residency. Under the White House's proposed 2015 budget, that threshold
would be raised to 50%, meaning a US company would have to buy a company larger
than itself to qualify.
However, Republicans are opposed to supporting the measure as a separate move to
a major overhaul of the tax system.
The Wall Street Journal says Medtronic, which
developed one of the first implantable pacemakers in the 1960s, is among the
world's largest makers of surgical heart and spinal implants, which have
historically been sold at high profit margins.
Covidien deals mainly in surgical operating tools
and devices such as peripheral stents, which help prop open collapsed arteries
in the legs.
Covidien stockholders will receive $93.22 per
share, composed of $35.19 in cash and 0.956 of a Medtronic share. That
represents a 29% premium to Covidien's closing share price Friday. Covidien
shareholders will own 30% of the combined company.
In recent years, the rise in tax redomiciled
companies in Ireland -- some with no physical presence- -
has distorted the GNP metric which has been seen a more reliable indicator of
Irish economic performance compared with GDP (gross domestic product) which
includes the profits of foreign multinational companies operating from Ireland.
Medtronic opened a facility in Galway in 1982 and
it has 2,000+ employees; Covidien employs more than 1,500 people in Ireland.
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