Earn­ings re­port may of­fer news on Medtronic’s Ir­ish step-danc­ing

Modern Healthcare - - THE WEEK AHEAD - —Bob Her­man

This week, de­vice­maker Medtronic will re­port first-quar­ter earn­ings for fis­cal 2015. While the fi­nan­cial re­sults are im­por­tant, many an­a­lysts will tune in to hear more about the com­pany’s pend­ing ac­qui­si­tion of Co­vi­dien.

Min­neapo­lis-based Medtronic said in June that it planned to buy Co­vi­dien, a sur­gi­ca­land med­i­cal-de­vice sup­plier based in Ire­land, for al­most $43 bil­lion in cash and stock. The deal is ex­pected to close by the end of the year.

What turned most heads was Medtronic’s con­tro­ver­sial plan to move its of­fi­cial head­quar­ters from Min­neapo­lis to Dublin, thereby reap­ing a lower cor­po­rate tax rate. The nom­i­nal U.S. rate is about 35%, though few com­pa­nies pay that amount.

Medtronic CEO Omar Ishrak re­cently told Mod­ern Health­care that his com­pany made the bid for Co­vi­dien to ac­cel­er­ate its growth and ex­pand its prod­uct port­fo­lio, not to avoid taxes. Medtronic and Co­vi­dien don’t over­lap in many ar­eas; Medtronic is best-known for heart and spine im­plants, while Co­vi­dien fo­cuses more on sup­plies, like sur­gi­cal sta­plers.

Some who fol­low the com­pany agree with Ishrak. Wil­liam Blair & Co. an­a­lyst Ben An­drew wrote in a re­search note that if Medtronic got Co­vi­dien’s 14% ef­fec­tive tax rate in Ire­land, it would save about $250 mil­lion a year, a mod­est sum given its $17 bil­lion in rev­enue last year. “While this is a lot of cash by any­one’s met­rics, it is not enough in and of it­self to jus­tify pur­su­ing the trans­ac­tion,” An­drew said.

Medtronic’s fi­nan­cials will be re­leased be­fore the mar­kets open Tues­day, with an an­a­lyst we­b­cast start­ing at 8 a.m. ET.

Ishrak

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