Health giant Medtronic Inc. said it will acquire Irish rival Covidien in a $42.9-billion cash-and-stock deal, giving the U.S. firm a lower tax rate and a broader portfolio of medical devices.
Medtronic said it plans to move its corporate headquarters to Dublin, though its operational headquarters will remain in its current Minneapolis main office.
The move enables the company to be taxed at Ireland's 12.5% corporate rate, instead of the 35% U.S. rate.
The deal should put Medtronic in a better position to enter such emerging markets as India, China and Brazil because new business in those countries would be taxed at the lower Irish rate, said Venkat Rajan, a medical technologies analyst at research and consulting firm Frost & Sullivan.
“Through this tax inversion, their headquarters will be in Ireland but functionally their headquarters are really still in the U.S.,” Rajan said. “It allows them to set up a more healthy business model going forward.”
Because both companies already are giants in the medical-devices market, the merger should allow for more robust research and development and more comprehensive health-monitoring capabilities, said Harry Wang, a health industry analyst at product research firm Parks Associates.
The medical devices industry has been plagued by slow innovation, but the merger should advance the market, Wang said.
“By buying up this company and consolidating R&D spending, they have a better chance of getting their products to market,” he said. “Over the long term, if R&D is spent wisely and effectively, you will see more cost-effective products for consumers.”