By MPR News Staff -- As Medtronic's announced plan to purchase Irish competitor Covidien reverberates around the medical technology business sector -- and the journalists who cover it -- reaction and analysis has started percolating.
The combined company would have its executive offices in Dublin, where it could benefit from Ireland's lower corporate tax rates. But the merged company would continue to operate in Minneapolis, where Medtronic employs more than 8,000, the companies said in a statement.
Catherine Boyle at CNBC adds details on the tax benefits:
The U.S. company had also been linked to a potential bid for U.K.-listed Smith & Nephew. Ireland's corporation tax rate of 12.5 percent is substantially lower than both the U.K.'s corporation tax of 21 percent and the U.S.'s of 35 percent. Covidien itself is historically based mainly in Massachusetts, but moved its headquarters to Ireland for tax reasons in 2009.
Tim Worstall at Forbes elaborates on the tax benefits to Medtronic's bottom line:
Being able to pay higher dividends without paying that higher tax rate is the goal. For Medtronic (or any other US domiciled company) to be able to pay dividends it must first repatriate the foreign profits. At which point they get hit with that 35 percent US corporate income tax minus any foreign profits taxes already paid. And the aim and purpose of a company is to enrich the shareholders: that's what they're for. So, being able to pay a high and rising dividend is what corporate managements would like to be able to do.
Sam Ro at BusinessInsider reminds that "Congress has been aggressively pushing legislation to close this corporate tax loophole."
"These transactions are about tax avoidance, plain and simple," said Michigan Senator Carl Levin last month when he introduced the Stop Corporate Inversions Acto fo 2014. "Our legislation would clamp down on this loophole to prevent corporations from shifting their tax burden onto their competitors and average Americans while Congress is considering comprehensive tax reform."
Reuters says the deal has other other upsides besides tax benefits, including globalization:
With a presence in more than 150 countries, the combined entity will be better able to serve global market needs. Medtronic and Covidien have combined revenues of $13 billion from outside the U.S., of which $3.7 billion comes from emerging markets. Covidien's extensive capabilities in emerging market R&D and manufacturing, joined with Medtronic's demonstrated clinical expertise across a much broader product offering, significantly increases the number of attractive solutions the new company will be able to offer to governments and major providers globally.
Ed Silverman at the Wall Street Journal asks:
Will the time come when the U.S. medical products industry is no longer headquartered in the U.S. The notion may sound far-fetched, but a growing number of drug and device makers are more than willing to abandon U.S. headquarters and the implications for the U.S. are sobering. One company after another has begun searching for acquisitions that would allow them to enjoy a lower tax rate by purchasing a rival based in certain foreign countries and then shifting headquarters there.