Medtronic, a global medical technology, services and solutions company, has agreed to acquire Covidien, a global healthcare technology and medical supplies provider, in a cash-and-stock transaction valued at $93.22 per Covidien share, or a total of approximately $42.9 billion, based on Medtronic’s closing stock price of $60.70 per share on June 13.
Once the transaction is completed, the combined company will have a comprehensive product portfolio, a diversified growth profile and broad geographic reach, with 87,000 employees in more than 150 countries. The boards of directors of both companies have unanimously approved the transaction.
“We are excited to reach this agreement with Covidien, which further advances our mission to alleviate pain, restore health and extend life for patients around the world,” said Omar Ishrak, chairman and CEO of Minneapolis-based Medtronic. “This acquisition will allow Medtronic to reach more patients, in more ways and in more places. Our expertise and portfolio of services will allow us to serve our customers more efficiently and better address the demands of the current healthcare marketplace. We also look forward to welcoming the Covidien team to Medtronic and working together to improve healthcare outcomes globally.”
“Covidien and Medtronic, when combined, will provide patients, physicians and hospitals with a compelling portfolio of offerings that will help improve care and surgical performance,” said José E. Almeida, chairman, president and CEO of Covidien. “This transaction provides our shareholders with immediate value and the opportunity to participate in the significant upside potential of the combined organization.”
Covidien is a global healthcare products company that develops, manufactures and sells a diverse range of industry-leading medical device and supply products. With 2013 revenue of $10.2 billion, Covidien has more than 38,000 employees worldwide in more than 70 countries, and its products are sold in over 150 countries.
The combination with Covidien supports and accelerates Medtronic’s three fundamental strategies: therapy innovation, globalization and economic value.
With its expanded portfolio of innovative products and services, Medtronic will deliver therapy and procedural innovations to address major diseases around the world. Covidien’s products enhance Medtronic’s existing portfolio, offer greater breadth across clinical areas and entry points into new therapies. With a presence in more than 150 countries, the combined entity will be better able to serve global market needs. Medtronic and Covidien have combined revenues of $13 billion from outside the U.S., of which $3.7 billion comes from emerging markets. Medtronic has focused on aligning with its customers to create more value in healthcare systems around the world—in various delivery and payment systems—by combining products, services and insights into solutions aimed at expanding access and reducing healthcare costs. With Covidien, Medtronic will 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.
As a direct benefit of the company’s new financial structure, Medtronic will commit to $10 billion in technology investments over the next 10 years in areas such as early stage venture capital investments, acquisitions and R&D in the U.S., above and beyond Medtronic’s and Covidien’s existing plans.
“The medical technology industry is critical to the U.S. economy, and we will continue to invest and innovate and create well-paying jobs,” said Ishrak.
After completion of the transaction, the businesses of Medtronic and Covidien will be combined under a new entity to be called Medtronic plc. It will have its principal executive offices in Ireland, Covidien’s current headquarters, and where both companies have a longstanding presence. Medtronic plc will be led by Ishrak, and will continue to have its operational headquarters in Minneapolis, where Medtronic currently employs more than 8,000.
The transaction is expected to be accretive to Medtronic’s cash earnings in FY 2016, the first full fiscal year, and significantly accretive thereafter. The transaction is also expected to be accretive to GAAP earnings by FY 2018. The combination is expected to result in at least $850 million of annual pre-tax cost synergies by the end of fiscal year 2018. These synergies include the benefits of optimizing global back-office, manufacturing and supply-chain infrastructure, as well as the elimination of redundant public company costs. The estimate excludes any benefit from potential revenue synergies.
Through this combination, Medtronic is expected to generate significant free cash flow, which it will be able to deploy with greater strategic flexibility, particularly in the U.S.
The consummation of the transaction 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. The transaction is expected to close in the fourth quarter of 2014 or in early 2015. The announcement required under the Irish Takeover Rules has been made.