Shareholders sue Medtronic over Covidien deal: 5 key concepts

Spinal Tech


Medtronic shareholders filed a lawsuit in early July at the Hennepin County District Court in opposition to the company's $42.9 billion acquisition of Covidien, according to an SC Times report.


Shareholder Lewis Merenstein filed the suit objecting to the "reverse merger" structure of the deal. Here are five things to know about the suit:


1. The transaction will convert Medtronic shares into shares of a new company — Medtronic PLC — that includes Covidien. The lawsuit alleges this plan will cause substantial loss for Medtornic stockholders.


2. The sale would force Medtronic stockholders to pay taxes on gains and those who have held the stock for more than one year stand to see federal tax rates jump 15 percent to 30 percent on the gain, according to the lawsuit.


3. Medtronic stated allegations in the lawsuit are "without merit" and the company plans to defend their position in court.


4. If the transaction is approved, the new company would locate headquarters in Ireland, as Covidien is an Irish-domiciled company. The company's location in Ireland could have tax advantages over headquartering in the United States. However, the company's statement reports the acquisition "is driven by a strategic decision to combine the companies and to become the world's premier medical technology and services company."


5. There are Covidien shareholders who are unhappy with the transaction as well. Richard Taxman, a Covidien shareholder, filed suit against the company to halt the proposed acquisition, alleging breaches of fiduciary duty.


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