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| Medtronic CEO Omar Ishrak |
Medtronic ($MDT) and Covidien ($COV) are riding high on their recently announced $42.9 billion merger--a deal that will pay dividends further down the line and expand the companies' hospital access, top-level management said in a conference call on Monday morning. Management highlighted Covidien's surgical division in particular, its largest and fastest growing group.
Medtronic CEO Omar Ishrak, CFO Gary L. Ellis and Covidien CEO José E. Almeida sat down this morning to flesh out the purchase, one that allows the company to combine their offerings and sets the stage for greater success in the future, the companies said during the call.
"Our collective portfolio for open and minimally invasive procedures will give us a broad platform over a wide range of surgical specialties," Ishrak said. "We believe Medtronic's deep expertise will accelerate introduction and rapid adoption in markets around the world."
Through the deal, the combined company will make a $10 billion technology investment in the U.S. over the next 10 years, funneling money into early stage venture capital, acquisitions and R&D. The purchase also holds positive implications for Medtronic abroad, as the company will benefit from Covidien's considerably lower Irish tax rate. Covidien had a 14.7% effective tax rate in 2012 that rose to 21.1% last year due to outstanding matters with former parent company Tyco. Medtronic had an 18.4% tax rate in 2013, according to The Wall Street Journal.
Ishrak mentioned hospital business and reimbursement as another attractive part of the merger. Although Medtronic offers a broad scope of heart devices, spinal implants and insulin pumps, joining forces with Covidien allows the company to grab hold of a growing surgical market and win coveted government reimbursement for its products.
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| Covidien CEO José Almeida |
"[The merger] gives us a much better set of assets with which to approach the hospital," Ishrak said during Monday's call. "Frankly, with Medtronic on its own, the value proposition of most of our devices and therapies are outside the hospital. Together with Covidien, our ability to use technology to drive hospital efficiency goes up a magnitude."
Medtronic's board also approved a 9% increase in its cash dividend yesterday, raising the quarterly amount to approximately $0.31 per share of the company's common stock, which would result in an annual amount of $1.22 per share. The decision reflects the company's commitment to return 50% of its free cash flow to shareholders and underscores the confidence of top-level management, Ishrak said in a statement.
Not to be left on the sidelines, Covidien will enjoy its fair share of perks through the deal. The deal price is a 33% premium to Covidien's June 13 close, and Covidien shareholders will own about 30% of the combined company as a result of the merger. The combination is expected to result in at least $850 million of annual pretax cost synergies by the end of fiscal year 2018.
"When we look how to expand into adjacencies and white space, we could have done things on our own. But the ability to combine with one of the largest and most innovative devicemakers in the world brings this company to a force multiplier that we could not replicate by ourselves," Almeida said. "This is one plus one equals 5. This is the ability to really go around the globe."
- get more from Reuters
- here's the WSJ story (sub. req.)
- here's a statement from Medtronic