Merger Mondays Claim Another Spinoff In Covidien

Merger Mondays are back. The latest mega deal announced is Medtronic’s (MDT) ~$42.9b takeover of device maker Covidien (COV). The deal price represents a ~30% premium and includes $35.19 of cash and 0.956 Medtronic shares. While Medtronic’s management is out touting the numerous cost savings and synergies gained through the deal, the main motivation behind the deal appears to be tax related. Covidien is based in Ireland and Medtronic is based in the US. Acquire the company, move the HQ, pursue a ‘tax inversion’ and presto! A lower tax bill and simpler regime. If that is really the case, the WSJ notes that $42.9b is quite a hefty price for a lower tax bill.

While the deal raises some compelling questions about the US tax regime, for this site, the interesting thing about Covidien is that it has the unique distinction of being both a spinoff AND a parent company. The company came about back in 2007 when spinoff machine Tyco (TYC) unloaded its healthcare business. After a few years of independence, the company increasingly found itself focused on its medical devices business so it decided to spin off its pharmaceuticals business, Mallinckrodt (MNK). MNK has been on an absolute tear since being spun off last year and this deal means COV holders will also make out quite well. Another spinoff win and this situation now rests in the hands of merger arb specialists.

Disclosure: Author holds no position in any stock mentioned.