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