Medtronic CEO Seeks to Clarify "Media And Political Noise" On Inversions
Medtronic's CEO, Omar Ishrak, attemps to deflect some of the criticism being leveled at corporations who are moving overseas to take advantage of tax regimes there.
August 19, 2014
Ever since medical devices giant Medtronic announced that it was acquiring Covidien and effectively moving its headquarters overseas, it has been at the receiving end of media and Congressional criticism.
Several lawmakers have put forth bills in an attempt to block such tax inversion transactions, and President Obama has openly revealed his distaste for companies that do such deals because it's an attempt to lower their corporate tax rate, by moving overseas. Defenders of Medtronic, such as former CEO Bill George have pointed to the fact that Medtronic already pays a lower effective tax rate, and the fact that the deal was done for strategic purposes.
While that may be true, there's no doubt that Medtronic wants to access profits it has from overseas operations and not pay a hefty tax bill tied to those earnings. The deal helps in doing exactly that.
In an earnings call Tuesday, Omar Ishrak, Medtronic's CEO sought to deflect the criticism which he described as "media and political noise." Specifically, he pointed to the fact that Medtronic will continue to pay "significant" corporate, federal, state and local taxes and make investments in the U.S. that will create many high-paying jobs.
Here's what Ishrak said.
While there has been a lot of media and political noise about inversions, let me clarify that when the transaction closes, Medtronic will continue to pay significant U.S. taxes and increase our investments in the U.S. On taxes we will continue to pay federal, state and local income taxes on all U.S. earnings as well as social security taxes, property taxes and the medical devices tax.
Cumulatively, these taxes represent more than 45% of U.S. income and we expect to pay a similar rate post close [of the Covidien deal]. In addition, this transaction will put us on an even playing field with foreign companies regarding use of internationally generated profits.
This structure will allow us to invest much more aggressively in the U.S., and based on that, we are committed to investing an incremental $10 billion over the next 10 years. These investments will result in more high-paying U.S. jobs. We have a proven track record of creating U.S. jobs with our past acquisitions. For example, with Sofamor Danek, AVE and MiniMed, we have created nearly 10,000 U.S. jobs since acquisition.
More recently, with Cardiocom we have more than doubled the workforce in just 12 months. We also expect additional job creation with our recently completed acquisitions of Visualase and Corventis, two U.S.-based companies.
Our level of US job creation will only accelerate following this transaction. In our view, acquiring Covidien is good for Medtronic, for our shareholders, for patients and for the medtech industry, and ultimately for the U.S. economy.
Despite Ishrak's lengthy prepared remarks, several analysts brought up the Covidien transaction in the question and answer session. Those revolved around potential cost synergies, and what Medtronic would do if the deal didn't progress as planned because of political winds. One analyst, Matt Taylor with Barclays said that some of the commentary that has emerged after several tax inversion deals were announced have been "erroneous" and asked what Ishrak and Medtronic management about what they have found to be the most surprising in some of the potential changes to these inversion deals that have been floated recently.
Yet, although Ishrak called the reaction to tax inversion deals as "noise" in his prepared statements, he did not take Taylor's bait simply stating that perhaps the number of inversion deals may be causing some consternation in legislative circles.
"I think there's not much we can do about those things," he noted. "We got to put our message out as accurately as possible in as genuine a fashion as we know how and focus on the strategic benefits and make sure that we know how to dial those in...I am not prepared to comment on any political sentiments that may be there."
[Photo Credit: Medtronic]
-- By Arundhati Parmar, Senior Editor, MD+DI
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