• by bcarlson@marketresearch.com
  • June 16 2014

Medtronic-Covidien Deal Could Create World’s Largest Device Company

Medtronic-Covidien Deal Could Create World’s Largest Device Company

A bid to unseat Johnson and Johnson as the world’s largest device company is underway.  US-based Medtronic said it would purchase Ireland-based Covidien for $42.9 billion, combining two of the world’s biggest medical device makers and helping Medtronic lower some taxes by gaining access to cash held overseas.  Kalorama estimates the deal will come just short of creating the largest device company based on 2013 revenues in our Device Bellwether Index.   The two companies earned a combined 28.2 billion in revenue versus J&J’s 28.5 in 2013.  However, this could easily change when 2014 revenues are in and the impact of J&J unit sales are taken in.   It’s not a bad deal, as product lines are complementary or at least don’t interfere.

Medtronic and Covidien both demonstrated small Q1 2014 gains, while J&J’s Device and Diagnostic division was flat in the first quarter of this year, so the chance that the new combined company could overtake Johnson and Johnson is possible.  

Medtronic is buying Covidien but for tax benefits.. it’s Medtronic that will move to Covidien’s home base in Ireland.  The deal, which is being structured as a so-called inversion, will relocate Medtronic from its headquarters in Minneapolis to Covidien’s corporate home in Ireland, where the tax rate is significantly lower than in the United States. But Medtronic argues that its tax rate will remain roughly the same, at about 18 percent.

According to media reports. Together, the two companies will become one of the biggest providers of medical devices in the industry, with 87,000 employees in over 150 countries.  Medtronic will pay $35.19 in cash and 0.956 of a share for each Covidien share.