| CHICAGO, June 16
CHICAGO, June 16 Medtronic Inc on Monday
said it will remain in the market for promising new technologies
even as it absorbs Dublin-based medical device maker Covidien
Plc in a $42.9 billion cash-and-stock deal.
A day after announcing the agreement to buy Covidien,
Medtronic executives told analysts on a conference call that the
additional cash flow generated by combining the two companies
would expand the budget for acquisitions and minority
investments, as well as internal research and development.
"There still are plenty of opportunities for us to focus on
other acquisitions, other innovation. That momentum doesn't need
to stop, even in this integration period," Medtronic Chief
Financial Officer Gary Ellis said on the call in response to a
Medtronic has been especially keen to expand beyond selling
devices into providing advisory services to hospitals, and would
consider acquisitions that would help it develop that business,
Chief Executive Omar Ishrak said.
"To the degree we can bring in other acquisitions to support
that further, we will look closely at that," Ishrak said.
The company currently has consulting contracts in Europe
that focus on cardiac catheterization laboratories, which are
specialized areas of the hospital where heart procedures such as
stent implants are performed.
Analysts said the blockbuster deal could speed further
consolidation in the medical device industry, which has
struggled to reaccelerate revenue growth since the global
economic downturn hit.
"This consolidation phase of the medical device evolution
makes sense to us, and it should provide increased pricing
stability and leverage for the companies taking the leap. For
those not yet participating, we would expect more to come," said
BMO Capital Markets analyst Joanne Wuensch in a note to clients.
Medtronic is acquiring Covidien in a so-called inversion
transaction that allows it to reincorporate in Ireland to take
advantage of lower tax rates.
Analysts said the strategy will enable Medtronic to access
cash generated through sales outside the United States and now
held overseas without paying a penalty for repatriating the
money. This benefit overshadows the modest reduction in the
overall corporate tax rate that the company is forecasting.
"We view the new access to (overseas) cash as the principle
driver of the inversion strategy," Cowen & Co analyst Joshua
Medtronic expects the acquisition to lower the corporate
tax rate of the combined company by 1 to 2 percentage points,
Ellis said. Medtronic's corporate tax rate is now about 18
Medtronic also said Monday it would maintain its prior
forecast for fiscal 2015 earnings in the range of $4 to $4.10 a
Shares of Medtronic fell about 2 percent to $59.44 in
morning trading. Covidien stock was up 20 percent at $86.40.
(Reporting by Susan Kelly in Chicago; Editing by Nick