Medtronic Acquires Covidien for $43 Billion

Medtronic is in the middle of the largest acquisition of its history, negotiating a now $59 billion deal. Its target is Covidien, an Irish medical technology company. With nearly 40,000 employees and revenues of $10 billion, it is a large player, producing “surgical solutions, vascular therapies and patient self-care.” This deal falls in the category of a market extension, related acquisition. While some acquisitions can create a fear of monopolies; however, Medtronic does not run the risk of anti-trust laws with this deal. By acquiring Covidien, Medtronic seeks to expand its market, increase globalization, reduce costs and increase revenue. Covidien’s products are in the same industry as Medtronic, but only a small part of their businesses overlap, meaning new product lines for Medtronic in this new company. Through Covidien’s customers and distribution channels, Medtronic will gain access to new markets. Together, the new company will serve 150 countries.  Its extensive market reach will help with Medtronic’s goal of globalization. With the growth rate slowing in the domestic industry, a steady 2%, Medtronic needs to capitalize on the booming growth rates of countries in emerging markets. These new markets are seeing 12%-19% growth. Also because of the slowing growth, Medtronic needs to find a way to increase revenues or cut costs. Medtronic was hoping to benefit from a tax inversion by moving the Medtronic business address to Ireland where the tax rate is 12.5%, as compared to 35% in the United States. Unfortunately for Medtronic, both the federal governments of the United States and Ireland are altering regulations to keep corporations like Medtronic from seeking tax shelters elsewhere. Shareholders are upset as well, citing and under- or over-valuation of deal, depending on their allegiance. While the text says that mergers should be dealt with quickly and with the fewest bidders, to benefit the bidding company, Medtronic has not found their deal as simple. With governments and shareholders both upset, there is not much positive press for this deal, which is never positive for a company’s image. In addition, Medtronic will have to have an excellent integration strategy in order to best utilize the economic benefit of the new company. Seemingly, the two companies have similar enough missions, visions and sizes to integrate fairly easily; however, the results of the acquisition will remain unknown until after the closing of the deal early next year.