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News : Irish Economy Last Updated: Jun 17, 2014 - 8:23 AM

US medical devices firm Medtronic to become Irish in $42.9bn in deal; GNP to rise
By Michael Hennigan, Finfacts founder and editor
Jun 16, 2014 - 10:04 AM

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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) metric.

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 of $17bn.

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. 

Related link on Apple, FDI and tax:

European Union investigates how Ireland aided Apple to avoid foreign taxes - - Ireland’s love affair with American business under scrutiny

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