UPDATE 2-Medtronic CEO says Covidien deal good for U.S. economy
(Adds CEO comments, earnings details)
By Susan Kelly
Aug 19 (Reuters) - Medtronic Inc Chief Executive Omar Ishrak defended his company's plan to acquire Dublin-based Covidien Plc in a so-called inversion deal, saying the medical device maker will be able to create more U.S. jobs while still paying substantial taxes once the transaction closes.
Medtronic, which announced its $42.9 billion acquisition of Covidien in June, is among a number of U.S. corporations that have unveiled inversion deals in recent months to establish a tax domicile abroad.
President Barack Obama has criticized the strategy as a rush by companies to avoid U.S. corporate taxes, and the administration is weighing executive actions.
Medtronic has maintained the main rationale for the deal is strategic, combining the two companies' complementary product lines, and will free up cash generated overseas for reinvestment in the United States.
Ishrak, in remarks during the company's earnings conference call on Tuesday, said Medtronic expects to invest "much more aggressively" in the United States after the deal closes, resulting in accelerated creation of high-paying U.S. medical technology jobs.
"Acquiring Covidien is good for Medtronic, for our shareholders, for patients, for the medtech industry and ultimately good for the U.S. economy," he said.
In an interview, Ishrak said the company's effective tax rate on global income will fall to about 16-17 percent after the deal from 18-19 percent now.
Medtronic on Tuesday reported the strongest quarterly U.S. sales growth for its medical devices in five years and said it was committed to completing the Covidien acquisition by the end of the year or early 2015.
The Minneapolis-based company also confirmed its full-year profit and revenue outlook. The company's shares were flat at $63.60 in midday trading.
Net earnings fell to $871 million, or 87 cents a share, in the first quarter ended July 25 from $953 million, or 93 cents a share, a year earlier.
Excluding restructuring charges and costs related to the Covidien acquisition, Medtronic earned 93 cents a share. Analysts on average expected 92 cents, according to Thomson Reuters I/B/E/S.
Revenue rose 4 percent to $4.27 billion, while analysts had forecast $4.25 billion.
U.S. revenue increased 6 percent to $2.33 billion, buoyed by new products, including an implanted diagnostic monitor for the heart called Reveal, that offset weakness in its core markets for spinal devices and implantable cardioverter defibrillators.
The company's new CoreValve replacement heart valve in the two quarters since its launch has captured 40 percent of the U.S. market for valves that can be implanted in a less-invasive procedure than traditional open-heart surgery, Medtronic said. It competes against Edwards Lifesciences Corp's Sapien heart valve.
Medtronic reiterated its outlook for fiscal 2015 profit of $4.00 to $4.10 a share, excluding special items, and revenue growth in the range of 3 percent to 5 percent adjusted for currency fluctuations. (Reporting by Susan Kelly in Chicago; Editing by Jeffrey Benkoe, Lisa Von Ahn and Cynthia Osterman)