Medtronic deal could cre­ate more price com­pet­i­tive­ness

Modern Healthcare - - NEWS - By Jaimy Lee

Medtronic’s plan to buy Co­vi­dien is likely a move to lower its taxes and strengthen its abil­ity to with­stand price pres­sure from hospi­tal cus­tomers by cre­at­ing a go-to seller of a wide range of med­i­cal sup­plies.

The pro­posed $42.9 bil­lion deal, which the two pub­licly traded firms are dis­cussing, would pair Medtronic, best known for high-cost heart de­vices and spine prod­ucts, with Co­vi­dien, an Ire­land-domi­ciled sup­plier of mid­mar­ket prod­ucts used in surgery and pa­tient mon­i­tor­ing.

The com­bined com­pany would gen­er­ate about $26 bil­lion in to­tal sales, mak­ing it the world’s sec­ond-largest med­i­cal de­vice com­pany af­ter John­son & John­son. Both boards have en­dorsed the deal, which would re­quire reg­u­la­tory ap­proval.

One rea­son cited for the deal is to take ad­van­tage of Ire­land’s lower cor­po­rate tax rate by mov­ing Medtronic’s head­quar­ters from Minneapolis to Dublin, where Co­vi­dien is based— though the lat­ter’s U.S. head­quar­ters is in Mans­field, Mass. Ire­land’s main cor­po­rate tax rate is 12.5%, com­pared with 35% in the U.S. Medtronic re­ported an ef­fec­tive tax rate of 18.5% for fis­cal 2013. But mar­ket an­a­lysts and oth­ers say the pro­posed merger also is driven by pur­chaser pric­ing pres­sure, forc­ing man­u­fac­tur­ers to eye con­sol­i­da­tion. “With in­creased size, (Medtronic) can also af­ford to take mar­ket share and com­pete more on price,” said David Ka­plan, credit an­a­lyst with rat­ings agency Stan­dard & Poor’s.

It’s un­clear if the deal will lead to higher prices or if the new com­pany will lower its prices in some cat­e­gories to boost mar­ket share.

The com­bined com­pany would gen­er­ate $26 bil­lion in to­tal sales.

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