Medtronic to Rework Deal

Shares of Medtronic ($MDT) dropped recently due to proposed changes for tax inversions. The company has responded by reworking its deal with Covidien.

The Obama administration’s crackdown on inversions is already shaking up some multibillion-dollar deals.

On Friday, the medical device maker Medtronic said it was restructuring the financing for its $43 billion acquisition of Covidien, a deal that will allow the American company to reincorporate in Ireland and lower its tax bill.

The announcement was the most direct sign yet that new rules from the Treasury Department, announced last week, were having an impact on pending deal plans. It also suggested that the Treasury Department had found a way to hit inverting companies where it hurt.

Until Friday, Medtronic had planned to used overseas cash held by it and Covidien to help pay for the deal. That plan would have been tax efficient: Medtronic had intended to use so-called hopscotch loans to get around paying the Internal Revenue Service to repatriate billions in cash.

But the Treasury Department put an end to hopscotch loans for inverted companies last week, forcing Medtronic to rethink its financing for Covidien. Now, instead of using existing cash being held abroad, Medtronic will draw on $16 billion in external financing to complete the deal. The terms of the deal remain unchanged.

The stock has been up as much at 4.8% today.

Posted by on October 3rd, 2014 at 2:26 pm


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