In the latest—and perhaps largest—example of a U.S. company ditching its borders, medical device maker Medtronic Inc. announced Sunday that it would purchase Dublin-based Covidien in a $42.9 billion deal that would move the combined company to Ireland.
The agreement calls for Medtronic to pay $35.19 in cash and 0.956 of a Medtronic share for each Covidien share—a 29 percent premium over the Irish medical device maker’s closing price on Friday.
Upon the deal’s completion—which is expected to happen in the last quarter of 2014 or in early 2015 pending approval by U.S. and European regulators as well as by shareholders at both companies—Covidien shareholders will hold 30 percent of the combined company.
Medtronic plans to keep its headquarters in Minneapolis even though it will reincorporate in Ireland.
While Omar Ishrak, chairman and chief executive of Medtronic, denied to The New York Times that the company is entering the deal with Covidien as a way to reduce its tax obligations through what’s known as a corporate inversion, it has called upon Cleary & Gottlieb and Irish firm A&L Goodbody—both of which are well-versed in this type of structure—for legal advice.
Likewise, Covidien has turned to Wachtell, Lipton, Rosen & Katz, Skadden, Arps, Slate, Meagher & Flom and Irish firm Arthur Cox, all of which have done extensive work with corporate inversions.
Medtronic’s proposed transaction comes just weeks after Pfizer Inc. sought to acquire AstraZeneca in a deal that would have allowed the New York-based pharmaceutical giant to relocate to the United Kingdom, where the tax rate is lower than the United States.
The bid was ultimately dropped when AstraZeneca’s board rejected Pfizer’s $119 billion offer on May 26. But in anticipation of a very different outcome, the U.S. House and Senate last month introduced the not-so-subtly titled bill, “Stop Corporate Inversions Act,” aimed at retroactively thwarting any inversion completed after May 8, which would have blocked Pfizer’s acquisition.
Medtronic’s deal with Covidien, as noted in The New York Times, imposes a condition that there be no legislative changes or Internal Revenue Service interpretation that would “cause New Medtronic to be treated as a United States domestic corporation for United States federal income tax purposes.” In other words, the transaction would be off if the company is unable to invert for legal reasons.
Those issues aside, Medtronic on Monday touted the advantages of a Covidien acquisition in an investor presentation, in which it said it expects to expand its global access and grow its product offerings. The combined company would increase Medtronic’s reach to 150 countries from 140 countries and nearly double its 2014 emerging market revenue to $3.7 billion from $2.1 billion.
Cleary’s legal team advising Medtronic on the proposed deal with Covidien includes antitrust partners George Cary and Enrique González-Díaz, employment partner Arthur Kohn and counsel Caroline Hayday, finance partners Laurent Alpert and Meme Peponis, M&A partners Victor Lewkow and Matthew Salerno, and tax partners Jason Factor and Yaron Reich. Associates Elaine Ewing, Corey Goodman, Matthew Mao, Neil Markel and Ruchit Patel were also involved in the deal.
A&L Goodbody’s legal team for Medtronic was led by M&A partners Alan Casey, Cian McCourt and Mark Ward. Corporate partner James Grennan, finance partner Séamus Ó Cróinín and tax partners Paul Fahy and Peter Maher were also involved in the deal.
In 2011, both Cleary and A&L Goodbody, along with Arthur Cox, advised on a different corporate inversion, this one involving a $960 million biotechnology merger between U.S.-based Alkermes and Ireland’s Elan Drug Technologies. The newly merged company moved to Ireland, keeping Alkermes as its name.
A&L Goodbody was also the subject of a 2011 story in The American Lawyer, which described how the firm promoted business relocation to Ireland through online brochures and a U.S. presence in the Silicon Valley.
Advising Covidien on its proposed sale to Medtronic was a Wachtell deal team headed by corporate partners Adam Emmerich and Benjamin Roth, and also included antitrust partner Nelson Fitts, corporate partner Victor Goldfeld, executive compensation and benefits partner Adam Shapiro, litigation partner Rachelle Silverberg, restructuring and finance partner Eric Rosof and tax partner Jodi Schwartz. Associates Franco Castelli, Tijana Dvornic, Emily Johnson, Andrew Kenny, Rohit Nafday, Michael Sabbah and Viktor Sapezhnikov worked on the case.
In 2009, Wachtell helped Covidien relocate to Ireland from Bermuda after it spun off from Tyco two years earlier. The firm also represented Covidien in a $2 billion spin-off of pharmaceutical unit Mallinckrodt Pharmaceuticals in 2011.
Skadden advised Covidien on the tax aspects of the deal. Its team includes tax partners Nathaniel Carden and Sally Thurston and associates Joseph Soltis and Chase Wink.
Skadden had served as legal counsel for Pfizer in its bid for AstraZeneca last month.
The team from Arthur Cox advising Covidien was led by Brian O’Gorman and included corporate partners Stephen Hegarty, Geoff Moore and Stephen Ranalow, as well as tax partner Fintan Clancy.
Representing Medtronic’s financial adviser Perella Weinberg Partners was Freshfields Bruckhaus Deringer, with a team led by New York-based corporate partner Doug Bacon and assistance from corporate partners Matthew Herman and David Sonter, finance partners Neil Falconer, Martin Hutchings and Brian Rance, and tax partner Robert Scarborough.
Perella Weinberg also turned to a team from Matheson for legal advice, led by corporate partners George Brady, Tim Scanlon, and Patrick Spicer, and banking partner Libby Garvey.
Covidien’s financial adviser was Goldman, Sachs & Co.