Now that Medtronic ($MDT) has grabbed Covidien ($COV) for $42.9 billion, Covidien's endovascular unit could be on the line as the companies chart a course of action for their pending merger.
During a conference call with investors Monday, Covidien CEO José E. Almeida and Medtronic CEO Omar Ishrak declined to lay out the companies' "portfolio management strategy," or cuts in potentially weak business areas. But general and administrative costs could be scaled back as part of the acquisition, with Covidien's endovascular business a prime target for restructuring, the Boston Business Journal reports.
As Leerink Partners analyst Richard Newitter told the BBJ, there is "very little overlap" in the companies' products, making it less likely that the combined company would implement sweeping changes. Covidien and Medtronic have also launched restructuring programs in recent years, so there's not much room left for change, Newitter said.
The one exception is Covidien's Minneapolis-based endovascular business, which employs about 1,000 people. Both Covidien and Medtronic offer vascular therapies, but Medtronic's vascular unit is historically the stronger performer. In its most recent quarter, the devicemaker reported $2.4 billion from its Cardiac and Vascular Group--52% of its total revenues--while Covidien turned in $409 million from its vascular therapies, or 16% of its total revenues.
"Vascular will be one pretty high-profile target within the combined company for where they can rationalize and eliminate certain redundancies, whether it's in the R&D area or the administrative or sales and marketing area. It seems like they will be able to trim there," said Morningstar analyst Debbie Wang (as quoted by the Boston Business Journal).
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| Medtronic CEO Omar Ishrak |
For now, though, jobs could remain a safe distance away from the chopping block. Minnesota Gov. Mark Dayton said that Medtronic told him it "intends to create over 1,000 new medical technology-related jobs in Minnesota during the next 5 years," and that he is not expecting net job loss, according to the BBJ.
In the meantime, Ishrak remains committed to ushering the deal through its early stages as seamlessly as possible, he said during Monday's conference call.
"Both companies have created a history of being able to do acquisitions and integrate them well, and that can go on. That momentum does not need to stop even during this interim period before we close," Ishrak said. "We know how to do this effectively without disturbing our integration priorities."
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