MEDICAL device maker Medtronic is likely to try to renegotiate the structure and terms of its $42.9 billion (R481.3bn) deal to buy Ireland’s Covidien in response to new US tax rules, according to people familiar with the situation.
The US Treasury last week reduced the ease and benefits of US companies buying foreign rivals so they can move their tax domicile abroad, a practice known as inversion. Concerns that US companies were using the strategy to avoid paying taxes spurred the action.
The new rules make it more expensive for Medtronic to buy Covidien by potentially requiring it to take out a loan instead of using cash held abroad, according to the people familiar with the matter and an analysis of the contract.
Covidien, which originally approached Medtronic, could be asked to consider a lower price and to take more stock and less cash, the people said. Increasing the stock component of the deal would be needed to meet the new government threshold for an inversion and resulting dip in US taxes.
It remains unclear how receptive Covidien will be to that possibility. It has some leverage, since Medtronic faces an $850 million breakup fee if it abandons the deal.