Medtronic Reveals Restructuring Plan post Covidien Buy - Analyst Blog

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Medtronic Inc. ( MDT ) recently announced that Omar Ishrak will continue in his current capacity as Chairman and CEO post completion of the company's proposed Covidien plc ( COV ) acquisition. The company also detailed its management team for the combined entity and restructured its business segments. Following the news, shares of Medtronic inched up 0.72% to reach $64.11 on Friday's adjusted close.

According to Medtronic, the combined business will be divided into four major groups. On completion of the transaction, Mike Coyle will run the Cardiac and Vascular Group (CVG) while Hooman Hakami will lead the Diabetes Group. Chris O' Connell will be the executive vice president and president of the Restorative Therapies Group (RTG). Bryan Hanson, the current group president of Covidien, will lead the newly formed Covidien Group - the fourth major business segment at the combined company.

Further, the current Peripheral Vascular business of Covidien that includes Endovascular, Arterial and CVI businesses, will be combined with CVG's Aortic and Peripheral Vascular business. Covidien's Neurovascular business will be integrated into RTG as an independent business unit. The combined entity will operate in four major regions, namely, Asia Pacific, the Americas, Europe, the Middle East and Africa, and China. The company will provide more information on organizational restructuring later.

We take note that, in order to offset the impact of a high U.S. corporate tax rate by shifting its tax base overseas, in Jun 2014, Medtronic had announced its plans to acquire Ireland-based medical device major, Covidien. This was particularly because the business tax rate in Ireland is a mere 12.5%, much lower than 35% in the U.S. - notably the highest in the world.

The deal, valued at $42.9 billion, also marks a solid step toward establishing Medtronic as the world's leading medical technology and services company in over 150 countries.

Last week, Medtronic announced a new financing plan to acquire the Irish company. Medtronic revealed that it will no longer utilize cash from its foreign subsidiaries, as previously planned, but will use an external debt of $16 billion to finance part of its $42.9 billion Covidien acquisition deal.

On successful completion of the transaction, Medtronic expects to report at least $850 million of annual pre-tax cost synergies by the end of fiscal 2018. The combined entity would generate about $27 billion in total revenue, including $3.7 billion from emerging markets. The acquisition is expected to be accretive to Medtronic's cash earnings in 2016, and significantly accretive thereafter. It is also estimated to be neutral to Medtronic's GAAP earnings by 2019 and accretive subsequently.

Medtronic carries a Zacks Rank #3 (Hold). Better-ranked stocks in the medical products industry include ICU Medical, Inc. ( ICUI ) and ZELTIQ Aesthetics, Inc. ( ZLTQ ). Both stocks sport a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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