Medtronic's ($MDT) $43 billion acquisition of Covidien ($COV) has become increasingly expensive, requiring the medical device giant to borrow more than $16 billion, the company said in a massive regulatory filing.
According to the 1,000-page document filed with the SEC Monday, the Minnesota-based company is borrowing the money from a group of lenders that includes Bank of America ($BAC). It was forced to do so as the costs associated with the deal began to creep up following the U.S. Treasury's move in September to reduce tax benefits associated with deals that are known as tax inversion.
Covidien is based in Ireland, which would have given the combined companies a lower tax obligation. A number of other U.S. companies in various industries did or were planning to relocate their headquarters outside of the country for financial advantage until a political firestorm erupted over tax inversions. Despite the new rules, Medtronic is still planning on inverting upon the Covidien deal's closure.
In its latest filing with the regulatory agency, Medtronic said its earlier estimate of $260 million in costs associated with the transaction didn't include fees and expenses as part of the financing. That's because the company had planned to use funds it held outside the U.S. to help finance the deal.
The new loan package includes a $5 billion, 3-year term loan as well an additional $11.3 billion in the form of 1-year bridge loans that can be refinanced with other debt, the filing said. Interest rates on the loans are variable and fixed to changes with the U.S. prime rate and the benchmark London Interbank Offered Rate (LIBOR).
Medtronic has said it plans to close the deal for Covidien early next year. However, the company said in the filing the merger is coming under greater scrutiny. The Federal Trade Commission has made a second request about the deal, and Chinese officials have placed it into a second stage of review instead of approving it in the first stage of the country's Anti-Monopoly Law.
In a move to stave off talk of a monopoly with the two giant device makers combined, Covidien last month said it would sell one of its products--a drug-coated balloon catheter called Stellarex that is currently in trials.
That sale was made to appease European regulators. Earlier this month Medtronic submitted unspecified concessions to the European Commission to further speed the close of the deal.
- check out the SEC filing