Health and Healthcare
Medtronic and Covidien Deal Is All About Taxes and Dividends
Published:
Last Updated:
The deal is a “tax inversion” in which the acquiring company — Medtronic — establishes a new company — this time in Ireland, home of Covidien — which buys both Medtronic and Covidien. As long as 20% of the new company’s shares are owned by non-U.S. shareholders who owned Covidien stock before the merger, the new company can be domiciled outside the United States and pay Ireland’s corporate tax rate of 12.5%, versus the 35% U.S. corporate tax rate.
Shareholders love these deals because the typical outcome is the new offshore company raises its dividend payment to reflect the lower tax rate it is now paying. A group of major investors in Walgreen Co. (NYSE: WAG) have argued for the company to use the occasion of its alliance with Alliance Boots to re-domicile the U.S. firm in Switzerland.
Unlike Walgreen, which has to worry about its public image in the United States, Medtronic can scuttle off to Ireland with the knowledge that the general public doesn’t know who the company is or what it does. Congress may make some new noise about eliminating the “tax inversion” loophole, but that won’t materialize until after the November elections, if at all.
Nothing that either company has to say about synergies or innovation or serving customers means anything. This deal is about avoiding U.S. taxes and paying higher dividends — the two things nearest to an investor’s heart.
In premarket trading on Monday, Covidien shares traded up about 36.5% to $98.25, above the 52-week range of $53.05 to $73.80.
Medtronic stock traded up about 12.5% to $68.30, above the current 52-week range of $51.06 to $64.33.
ALSO READ: Taxpayer Group Protests Walgreen Offshore Move
Is Your Money Earning the Best Possible Rate? (Sponsor)
Let’s face it: If your money is just sitting in a checking account, you’re losing value every single day. With most checking accounts offering little to no interest, the cash you worked so hard to save is gradually being eroded by inflation.
However, by moving that money into a high-yield savings account, you can put your cash to work, growing steadily with little to no effort on your part. In just a few clicks, you can set up a high-yield savings account and start earning interest immediately.
There are plenty of reputable banks and online platforms that offer competitive rates, and many of them come with zero fees and no minimum balance requirements. Click here to see if you’re earning the best possible rate on your money!
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Latest from 24/7
