Medtronic-Covidien Merger to Close in 2015; New Management Structure Announced

Medtronic Inc., based in Minneapolis, Minn., (at least for the next few months) has confirmed in a U.S. Securities and Exchange Commission (SEC) filing that its $43 billion merger with Dublin, Ireland-based Covidien plc would close late this year or early next year.

The company also indicated that recent U.S. government actions to quell inversion deals, such as new rules by the U.S. Treasury Department, would not prevent the merger from taking place and that the deal would still be a win-win for both companies and their shareholders.

According to the early October filing: “In arriving at its determination on June 15, 2014, the Medtronic board of directors consulted with Medtronic’s management, legal advisors and financial advisor, reviewed a significant amount of information, considered a number of factors in its deliberations and concluded that the transaction is likely to result in significant strategic and financial benefits to Medtronic and its shareholders.”

In the filing, Medtronic outlines some of the reasons that make the deal a strategic one, including the “belief that the combination will support and accelerate Medtronic’s three fundamental strategies” of:

• Therapy Innovation: With its expanded portfolio of products and services and ability to accelerate strategic investments and investments in technology, the “new” Medtronic would be a preeminent leader in developing, investing in and delivering therapy and procedural innovations to address the major disease states impacting patients and healthcare costs in the United States and around the world;
• Globalization: With a presence in more than 150 countries, the combined entity would be better able to serve global market needs. Medtronic and Covidien have combined pro forma revenues of approximately $27 billion including approximately $13 billion from outside the U.S., of which $3.7 billion comes from emerging markets. Covidien’s capabilities in emerging market R&D and manufacturing, joined with Medtronic’s clinical expertise across a much broader product offering, significantly increases the number of attractive solutions the new company would be able to offer globally; and
• Economic Value: Medtronic has adopted an intense focus on aligning with its customers to create more value in healthcare systems around the world by combining products, services and insights into solutions aimed at expanding access and reducing healthcare costs. With Covidien, Medtronic would be able to provide a broader array of complementary therapies and solutions that can be packaged to drive more value and efficiency in healthcare systems.

Officials also noted the “combination will also result in the diversification of Medtronic’s revenue base due to a stronger foundation in emerging market R&D and manufacturing and the addition of industry-leading capabilities and expertise in general and advanced surgery and patient monitoring.”

In the new SEC filing, Medtronic also revealed the proposed management structure of the new company. The new Medtronic will be composed of four major business segments, headed by Medtronic’s three existing group presidents plus Covidien group president Bryan Hanson. The four segments will comprise Medtronic’s existing cardiac and vascular group, valued at $8.8 billion; its restorative therapies group worth $6.5 billion; its diabetes group, worth $1.7 billion; and the fourth, the Covidien Group, currently valued at $10.4 billion. Covidien’s neurovascular business will function as an independent business under the umbrella of Medtronic’s restorative therapies group.

The company also announced four geographic regions around which the combined company will operate: Asia Pacific, the Americas, EMEA (Europe, the Middle East and Africa) and Greater China—down from Medtronic’s present seven regions.

“While we will move to four regions in the future—versus the seven regions represented in the Medtronic structure today—this is in no way intended to reflect a diminished importance or focus on those markets that previously served as regions, nor will I remain any less focused on seeing that these markets reach their potential and objectives,” Medtronic CEO Omar Ishrak said. “Rather, this approach will ensure we have the appropriate leadership involvement in these markets on a daily basis as we grow our overall scale and complexity.”