U.S. medical device manufacturer Medtronic has agreed to buy Ireland-based competitor Covidien for $42.9 billion in cash and stock.
The combined company would have its executive offices in Dublin, where it could benefit from Ireland's lower corporate tax rates. But the merged company would continue to operate in Minneapolis, where Medtronic employs more than 8,000, the companies said late Sunday in a statement.
Medtronic is paying a 29 percent premium on Covidien's stock price as of Friday. The shares had closed at $72.02 on the New York Stock Exchange.
The deal, Medtronic's largest, gives the company Covidien's portfolio of hospital supplies, from surgical staplers to ventilators, adding size and scope to help it compete with Johnson & Johnson, the No. 1 medical device company. At the same time, use of Covidien's Irish address may free almost $14 billion in cash Medtronic now holds overseas to avoid being taxed on it under U.S. law.
The primary motivation is "strategic and operational alignment," Medtronic Chief Executive Officer Omar Ishrak said Sunday. "It will drive better value for patients and customers around the world."
The deal is the latest in a series of acquisitions by medical-device manufacturers. The companies are seeking to expand their offerings and contain costs in response to price curbs forced by the nation's new health care law.
In April, Zimmer Holdings, an orthopedic device maker, announced that it was buying Biomet in a $13 billion deal.
Medtronic makes pacemakers and insulin pumps, among other products. Covidien specializes in surgical equipment.
As a result of savings from the deal, Medtronic said it would spend an additional $10 billion over the next decade in investments, acquisitions, and research and development in the United States.
"The medical technology industry is critical to the U.S. economy, and we will continue to invest and innovate and create well-paying jobs," Medtronic's Ishrak said in a statement.
Covidien shares climbed $14.73, or 20.5 percent, to close Monday at $86.75 while Medtronic shares fell 67 cents, or 1 percent, to $60.03.
Efforts by domestic companies to use mergers to reincorporate overseas for tax reasons have raised concern among some U.S. lawmakers. Ireland taxes corporate income at 12.5 percent, compared with a top marginal rate of 39.6 percent in the United States, according to the tax advisory firm KPMG.
Drug-maker Pfizer recently tried unsuccessfully to acquire U.K.-based Astra-Zeneca. The banana-seller Chiquita agreed to buy an Irish firm, Fyffes, in March.
Sen. Carl Levin, D-Mich., and 13 other senators introduced a bill in May to restrict the deals.
"These transactions are about tax avoidance, plain and simple," Levin said in a statement. "Our legislation would clamp down on this loophole to prevent corporations from shifting their tax burden onto their competitors and average Americans."
Information for this article was contributed by Michelle Fay Cortez and David Welch of Bloomberg News.
Business on 06/17/2014