Medtronic Borrows $16B to Finance Covidien Deal

Medtronic Inc.’s $43 billion acquisition of Covidien plc is becoming increasingly expensive, requiring the medical device giant to borrow more than $16 billion, the company said in a regulatory filing.

The 1,000-page document filed on Nov. 10 with the SEC indicates the Minneapolis, Minn.-based company is borrowing the money from a group of lenders that includes Bank of America. It was forced to do so as the costs associated with the deal began to creep up following the U.S. Treasury’s move in September to reduce tax benefits associated with deals better known as tax inversions.

Covidien is based in Ireland, which would have given the combined companies a lower tax obligation. A number of other U.S. companies in various industries moved or were planning to relocate their headquarters outside of the country for financial purposes until a political firestorm erupted over the practice. Despite the new rules, Medtronic still is committed to relocate abroad upon the  deal’s closure.

In its latest filing with the SEC, Medtronic said its earlier estimate of $260 million in costs associated with the transaction did not include fees and expenses as part of the financing. Those costs were omitted because the company had planned to use funds it held outside the United States to help finance the deal.

The new loan package includes a $5 billion, three-year term loan as well an additional $11.3 billion in the form of one-year bridge loans that can be refinanced with other debt, the filing said. Interest rates on the loans are variable and fixed to changes with the U.S. prime rate and the benchmark London Interbank Offered Rate.

Medtronic has said it plans to close the deal for Covidien early next year. However, the company acknowledged in the filing that the merger is coming under greater scrutiny. The Federal Trade Commission has made a second request about the deal, and Chinese officials have placed it into a second stage of review instead of approving it in the first stage of the country’s Anti-Monopoly Law.

In a move to stave off talk of a monopoly with the two giant device makers combined, Covidien last month said it would sell one of its products–a drug-coated balloon catheter called Stellarex that is currently in trials.

That sale was made to appease European regulators. Earlier this month Medtronic submitted unspecified concessions to the European Commission to further speed the close of the deal. The Commission, which has not provided details of the concessions in line with its policy, will decide by Nov. 28 whether to clear the deal.