Medtronic To Use External Financing To Complete Covidien Acquisition

(RTTNews) - Medical device maker Medtronic Inc. (MDT) on Friday reaffirmed its commitment to acquire smaller rival Covidien plc (COV) and said it plans to use about $16 billion in external financing to complete the acquisition.

Medtronic noted that despite the additional expense of the new financing, the strategic benefits of the transaction remain "strategically and financially compelling".

In mid-June, Medtronic said it agreed to acquire Dublin, Ireland-based Covidien in a cash and stock deal valued at about $42.9 billion. The deal will help Medtronic shift base to Ireland and save it from paying high U.S. corporate taxes.

Under the deal, Covidien shareholders will receive a consideration of $35.19 in cash and 0.956 of an ordinary share of Medtronic plc, the parent company of the new combined entity. This implies a total consideration of $93.22 per Covidien share.

Following completion of the deal, the businesses of Medtronic and Covidien will be combined under a new entity to be called Medtronic plc that will have its principal executive offices in Ireland. The combined company will be led by Omar Ishrak, Chairman and CEO of Medtronic, and will continue to have its operational headquarters in Minneapolis.

Medtronic said Friday that it will use external financing that is expected to be in place by closing of the transaction, rather than using cash from its foreign subsidiaries as previously planned. The company added that all terms and conditions of the deal that was announced in June remain unchanged.

Omar Ishrak, Chairman and CEO of Medtronic said, "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."

The company still expects the transaction to be accretive to its cash earnings in fiscal 2016, the first full fiscal year, and significantly accretive thereafter. Further, the company expects the transaction to be neutral to its reported earnings by fiscal 2019 and accretive thereafter.

MDT is trading at $64.99, up $2.19 or 3.49 percent on a volume of 9.10 million shares.

COV is trading at $93.77, up $4.96 or 5.58 percent on a volume of 6.47 million shares.