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Medtronic announces updated financing plans for Covidien acquisition

Medtronic, a global leader in medical technology, services and solutions, announced that it intends to use approximately $16bn in external financing to complete the acquisition of Covidien rather than using cash from its foreign subsidiaries as previously planned.

All terms and conditions of the definitive agreement reached between the two companies in June remain unchanged.
To fund the cash portion of the transaction, Medtronic now intends to utilize new financing expected to be in place by closing of the transaction.

As announced in June, upon completion of the transaction, each outstanding ordinary share of Covidien will be converted into the right to receive $35.19 in cash and 0.956 of an ordinary share of Medtronic plc, the parent company of the new combined entity.

"This proposed acquisition was conceived and undertaken for strategic reasons and is intended to create a company that can treat more patients, in more ways and in more places around the world," said Omar Ishrak, Chairman and CEO of Medtronic.

"We believe our combination will be uniquely positioned to help advance the goals of the Affordable Care Act in the U.S. as well as the objectives of virtually all health systems – to drive access to high-quality, affordable health care for patients around the world. Since the announcement of this transaction, we have worked closely with our Covidien colleagues to plan for the integration of these two leading companies, and we look forward to closing the transaction and realizing these strategic benefits."

Despite the additional expense of the new financing, the strategic benefits of the transaction remain compelling. The transaction is still expected to be accretive to Medtronic’s cash earnings in FY2016, the first full fiscal year, and significantly accretive thereafter.
The transaction is also expected to be neutral to GAAP earnings by FY2019 and accretive thereafter. Today’s announcement does not affect Medtronic’s FY2015 revenue outlook and earnings per share guidance, as the company’s outlook and guidance does not contemplate the expected closing of the Covidien transaction.

Medtronic expects the transaction to close in late CY2014 or early CY2015.

As provided in the June 15 transaction agreement, a new Irish holding company – Medtronic plc – will serve as the parent company of the new combined entity and will be listed on the NYSE.

The company will maintain principal executive offices in Ireland and operational headquarters in Minnesota. Through this combination, Medtronic plc is expected to generate significant free cash flow, which it will be able to deploy with greater strategic flexibility, particularly in the U.S.