Replies to post #179314 on Biotech Values

[DewDiligence]

MDT-COV deal is now official—premium is 29% relative to Friday’s closing price, but deal is fully taxable:

http://newsroom.medtronic.com/phoenix.zhtml?c=251324&p=irol-newsArticle&ID=1939883&highlight

Medtronic, Inc…and Covidien plc…today announced that they have entered into a definitive agreement under which Medtronic has agreed to acquire Covidien 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, 2014.

…each outstanding ordinary share of Covidien will be converted into the right to receive $35.19 in cash and 0.956 of an ordinary share of Medtronic plc. The per-share consideration represents a premium of 29% to Covidien's closing stock price on June 13, 2014, the last trading day prior to the announcement. Medtronic shareholders will exchange each share of stock they own in Medtronic for one ordinary share of stock in Medtronic plc. The transaction is expected to be taxable, for U.S. federal income tax purposes, to shareholders of both Medtronic and Covidien.

As was the case in the proposed PFE-AZN deal, there is no way to re-incorporate the acquiring US company in a new country without making the deal taxable; from a tax standpoint, existing MDT shareholders will be deemed to have sold their existing shares of MDT and purchased shares of Medtronic Plc (the newly formed company domiciled in Ireland).

The EPS impact for MDT:

The transaction is expected to be accretive to Medtronic's cash [i.e. non-GAAP] 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.

Notably, 15% of the merged company’s sales will derive from emerging markets.

[DewDiligence]

MDT will reimburse its executive officers for their personal capital-gains taxes consequent to the planned tax inversion merger with COV, but MDT’s ordinary taxable shareholders are out of luck:

http://dealbook.nytimes.com/2014/07/08/in-deal-to-cut-corporate-taxes-shareholders-pay-the-price

[DewDiligence]

MDT benefiting as expected from tax inversion:

http://www.wsj.com/articles/medtronic-to-book-500-million-restructuring-charge-1443476397

In a sign of how Medtronic PLC is benefiting from moving its headquarters to Ireland from the U.S., the medical-device company said it is paying $500 million in U.S. income tax on $9.8 billion of cash and investments that it has transferred to the U.S. from its overseas subsidiaries. That amounts to a 5% U.S. tax rate on the money. For U.S.-based companies, profits earned overseas are subject to the 35% U.S. corporate tax rate when repatriated to the U.S.

Medtronic said it is transferring the money after completing an “internal restructuring” in the wake of its acquisition of Dublin-based Covidien PLC earlier this year. That acquisition allowed Medtronic to move its headquarters from Minneapolis to Dublin, a so-called tax inversion move aimed at lowering the company’s tax burden.

… In its [SEC] filing, Medtronic said it plans to use the cash to meet its financial goals, including pursuing “financially disciplined” mergers and acquisitions, reducing its debt to Ebitda ratio, and returning free cash flow to shareholders through dividends and share buybacks.

[DewDiligence]

Barron’s on MDT—a bona fide ‘TGDT’ play: #msg-117830166.