Medtronic-Covidien Deal May Close By Jan 29

There is a possibility that Medtronic’s acquisition of Covidien could close by the end of this month. Following a hearing before the Irish High Court on Monday, Covidien announced that its petition to be acquired by Medtronic is scheduled to be heard before the court on January 26 and if approved, the deal is likely to close within 3 days. It has already received all other required approvals, including from the shareholders of both companies, the U.S. Federal Trade Commission (FTC), the European Commission, the Chinese Ministry of Commerce, the South Korean Fair Trade Commission and the Canadian Competition Bureau. ^{[1] [2] [3]} ((U.S. FTC Clearance Press Release, Medtronic, Nov 26 2014)) ^{[4] [5] [6]} (Also read Medtronic-Covidien Deal Receives Shareholder Approval)

See our full analysis for Medtronic Inc.

Revised Financing Strategy

The medical device major also recently announced a revised financing plan for the acquisition, following a notification by the U.S. Department of the Treasury and the Internal Revenue Service (IRS) discouraging tax-avoiding corporate inversion deals. Instead of using its $14 billion cash held mostly in foreign subsidiaries to fund the $16 billion cash component of the $43 billion deal, the company raised $17 billion from a massive commercial bond offering earlier this month. ^[7] (Also read  Medtronic To Go Ahead With Covidien Deal Despite Reduced Tax Benefits)

The combined Medtronic-Covidien entity, with a presence in more than 150 countries, is expected to drive more value and improve operational efficiency by offering various healthcare and diagnostic products and services as a package to its customers. Covidien generated over $8 billion in revenue in the first nine months of 2014 compared to Medtronic’s $13.2 billion, with about 50% of sales coming from outside the U.S. Covidien is expected to report its Q1 FY15 earnings on January 23, while Medtronic is expected to report its Q3 FY15 on February 17.

Our price estimate for Medtronic’s stock is currently around $64, which is over 10% below the market price.

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1. Covidien SEC Filing, Jan 12 2015 [↩]
2. Medtronic, Covidien Shareholders Approve Deal, WSJ, Jan 6 2014 [↩]
3. Press Release, Medtronic, Dec 4 2014 [↩]
4. European Commission Clearance Press Release, Medtronic, Nov 26 2014 [↩]
5. Chinese Ministry of Commerce Clearance Press Release, Medtronic, Nov 26 2014 [↩]
6. Medtronic and Covidien Shareholder Meetings Scheduled for January 6, 2015, Medtronic, Nov 17 2014 [↩]
7. Medtronic Prices $17 Billion in Private Placement of Senior Notes, Medtronic, Dec 1 2014 [↩]