Medtronic to acquire competitor Covidien

U.S. medical device maker Medtronic Inc. said it had agreed to acquire Covidien plc, the Dublin-based maker of surgical medical devices, for $42.9 billion in cash and stocks. The deal is expected to close in the fourth quarter of 2014 or the first quarter of 2015, Medtronic said.

Medtronic, headquartered in Minneapolis, is the world’s largest standalone maker of medical devices for cardiovascular and neurological conditions, while Covidien specializes in surgical instruments and supplies.

The transaction values each Covidien share at $$93.22 ($35.19 in cash and 0.956 Medtronic shares), or a premium of 29% to Covidien’s closing stock price on June 13, 2014, the last trading day prior to the announcement on June 15. It is subject to certain conditions, including approvals by Medtronic and Covidien shareholders. In addition, the proposed transaction requires regulatory clearances in the U.S., the E.U., China and certain other countries.

Once completed, the merger will create Medtronic plc, with a comprehensive product portfolio and broad geographic reach, with 87,000 employees in more than 150 countries. Medtronic and Covidien have combined revenues of $13 billion from outside the U.S., of which $3.7 billion comes from emerging markets.

The new entity will move its principal executive offices to Ireland, which will allow the U.S. company to reincorporate abroad and be subject to lower taxes. This process, known as inversion, would potentially allow Medtronic to avail of the 12.5% tax rate in Ireland, compared to about 35% in the United States.

Perella Weinberg Partners LP, Cleary Gottlieb Steen & Hamilton LLP and A & L Goodbody advised Medtronic; and Goldman, Sachs & Co. and Wachtell, Lipton, Rosen & Katz and Arthur Cox advised Covidien. Bank of America Merrill Lynch provided committed financing for the transaction.