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Medtronic's $17B Corporate Bond Sale Breaks 2014 Records - Analyst Blog

Beating all the major corporate bond issuances this year, Medtronic Inc. ( MDT ) recently announced a colossal $17 billion corporate-bond sale to fund the mega $42 billion purchase of its Irish rival Covidien plc ( COV ). Reportedly, these bonds have been issued in seven parts, including 10-year notes. These bonds are scheduled to mature in the band of three and 30 years.

Reportedly, Medtronic has offered $2.5 billion portions of 2.5% (5 year), 3.15% (7 year) and 4.375% (20 year) notes. The company has also offered $4 billion portions of 3.5% (10 year) and 4.625% (30 year) notes, among others.

This bond issuance by the MedTech stalwart tops this year's charts as the largest corporate bond deal, ahead of Chinese e-commerce giant Alibaba's ( BABA ) $8 billion public offering of bonds and Apple Inc.'s ( AAPL ) $12 billion offering in April. It also remains the second largest in the history of corporate bond offering, after last year's $49 billion bond issuance by Verizon Communications Inc. to finance its mega buy of 45% stake in Verizon Wireless.

We take note that, in order to offset the impact of a high U.S. corporate tax rate (35%), in Jun 2014, Medtronic had announced its plans to acquire its Irish rival Covidien. According to Medtronic, this would enable the company to shift its tax base (termed as 'inversion') to Ireland (which has a mere 12.5% corporate tax rate).

However, in September, the U.S. Treasury Department announced its first steps to curb tax benefits being availed through corporate inversions, underlining a set of new rules effective immediately which includes prohibition of "hopscotch" loans. While many Pharma and Medtech majors have been canceling their offshore deals following this new rule, Medtronic has decided to proceed with the same. This indicates that the company is reasonably confident of a successful integration coupled with high growth synergy that is likely to emerge from the impending Covidien acquisition.

Nevertheless, this tax reform induced Medtronic to change its financing plan in acquiring Covidien. The company revealed that it will no longer utilize cash from its foreign subsidiaries, as previously planned, but will instead use an external debt to finance part of the Covidien deal. The bond sale is thus in line with Medtronic's acquisition plan for Covidien.

Currently, Medtronic carries a Zacks Rank #3 (Hold).

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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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