Medical device maker Medtronic Inc. (MDT) is in advanced talks to buy smaller rival Covidien plc (COV) in a deal valued at more than $40 billion, the Wall Street Journal reported Saturday, citing people familiar with the matter.
According to the WSJ report, a deal, which could be structured as a so-called tax inversion, could be announced as early as Monday.
The acquisition of Ireland-based Covidien will enable Minneapolis, Minnesota-based Medtronic to be domiciled in Ireland and take advantage of lower corporate tax rates.
In such deals called inversions, acquirers buy companies domiciled in countries with lower corporate tax rates, enabling the acquirers to substantially reduce their own tax rates and also make it easier to access cash held overseas. The tax rate in Ireland is substantially lower than in the U.S.
Medtronic, which makes products ranging from stents and heart defibrillators to insulin pumps, has a market value of about $61 billion. Covidien, a maker of devices used in surgery such as surgical staples, feeding pumps and ventilators, is valued at about $32 billion.
U.S. healthcare companies are increasingly looking at inversions as an option as the U.S. overhauls its healthcare system under the Affordable Care Act. Some of these companies are sitting on huge cash hoards in their overseas subsidiaries and would be heavily taxed if they repatriated these funds to the U.S.
In addition, hospitals in the U.S., to which medical device companies provide products and services, are seeking to reduce costs by consolidating their vendors.
U.S. drugmaker Pfizer Inc. (PFE) recently made an abortive $116.6 billion takeover bid for British drug maker AstraZeneca plc (AZN, AZN.L) through an inversion. Parsippany, New Jersey-based Actavis plc (ACT) relocated to Ireland through an inversion.
However, U.S. lawmakers are now targeting legislation aimed at curbing U.S. companies from doing inversions.
MDT closed Friday's trading at $60.70, down $0.09 or 0.15 percent on a volume of 2.09 million shares. COV closed Friday's trading at $72.02, down $0.02 or 0.03 percent on a volume of 0.83 million shares.
by RTT Staff Writer
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