Medtronic will use around $16 billion in external financing to complete its Covidien acquisition instead of cash from foreign subsidiaries, as was previously planned.
Medtronic Chairman and CEO Omar Ishrak announced the change after the Treasury Department introduced new regulations meant to discourage tax-inversion deals. Medtronic announced its plan to acquire Covidien in June and move headquarters to Ireland, where Covidien is located, at that time.
Even with this new announcement, Mr. Ishrak maintained Medtronic acquired Covidien for strategic reasons, intending to build a company that treats more patients worldwide — not for tax inversion.
"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," said Mr. Ishrak. "Since the announcement of this transaction, we have worked closely with our Covidien colleagues to plan for the integration of these two leading companies, and we look forward to closing the transaction and realizing these strategic benefits."
Medtronic will now use new financing expected to be in place by the time the transaction closes. The company expects to close the transaction by the end of this year or beginning of next year. Each outstanding ordinary Covidien share will be converted into the right to receive $35 in cash and 0.956 of an ordinary Medtronic plc share. Medtronic plc will become the parent company of Medtronic and Covidien post-deal.
All terms and conditions of the definitive agreement reached between the two companies in June remain unchanged. The transaction is still expected to be accretive to Medtronic's fiscal year 2016 cash earnings and significantly accretive thereafter.
Medtronic plc is expected to generate significant free cash flow for greater strategic flexibility. The company announced plans earlier this year to dedicate $11 billion to research and development in the United States.