Medtronic Clears Major Hurdles to Acquire Covidien

Three down, two to go when it comes to major regulatory hurdles that Medtronic and Covidien need to clear for their proposed $43 billion merger.

The U.S. Federal Trade Commission, the European Union and Canada's Competition Bureau have approved the sale of Ireland-based Covidien Plc (COV) to Medtronic (MDT). Only permission from Chinese regulators and sanction by the High Court of Ireland stand in the way of the deal, Medtronic announced.

U.S., European and Canadian regulators are insisting that the companies sell Covidien's Stellarex drug-coated angioplasty balloon platform to increase competition against Medtronic. Colorado Springs-based Spectranetics Corp. (SPNC) plans to buy the Stellarex business from a Covidien subsidiary for $30 million after the proposed Medtronic-Covidien deal closes in early 2015.

The EU said the deal raised competition concerns in the drug-coated balloon market, where it said there were few competitors to put pressure on Medtronic, the market leader, according to a report in the Wall Street Journal.

Fridley, MN-based Medtronic and Dublin, Ireland-based Covidien plan to form a separate company, Medtronic Plc, based in Ireland in order to take advantage of that country's 12.5% corporate tax rate. The U.S. corporate tax rate stands at 35%. The U.S. Treasury Department, however, announced its intentions to make it more difficult for a tax-inverted company to move overseas funds back into the U.S. tax-free.

The companies plan to hold a special meeting in January to seek shareholder approval of the merger, the Wall Street Journal reported.

The purchase, announced in June, is the largest acquisition of a foreign firm by a U.S. company, based on Standard & Poor's Capital IQ data. The deal stands to make Medtronic, which was already the fourth largest medical device firm, even more competitive, putting it roughly on par with Johnson & Johnson's medical device business--now the biggest in the world.

In previous maneuvers to ready itself for sale, Covidien snapped up Sapheon, Inc. (Morrisville, NC), a developer of venous disease treatments; and Reverse Medical Corporation (Irvine, CA), a small, privately held company that makes devices to manage acute stroke and neurovascular disease. Terms of both transactions, announced in August, were not disclosed.

Check out Qmed's timeline of the Medtronic-Covidien deal.

Refresh your medical device industry knowledge at BIOMEDevice San Jose, December 3-4, 2014.

Nancy Crotti is a contributor to Qmed and MPMN.

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