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Acquisition

Medtronic to buy Covidien for US$42.9 billion

The acquisition will allow Medtronic to expand into new areas especially the weight-loss surgery and laparoscopic markets

Medtronic has agreed to buy Dublin-based, Covidien, for US$42.9 billion (£25.27 billion) and shift its executive headquarters to Ireland. According to analysts, the cash and stock deal will allow Medtronic to reduce its overall global tax burden, which is currently 18 percent, although the company emphasised the acquisition led by a complementary strategy with Covidien on medical technology, rather than tax considerations.

"The real purpose of this, in the end, is strategic, both in the intermediate term and the long term," said Medtronic Chief Executive Omar Ishrak. "It is good for the US in that we will make more investment in US technologies, which previously we could not."

The merger of Medtronic, the world's largest stand-alone medical device maker with a market value of over US$60 billion, and Covidien will create a close competitor in size to the medical device business of industry leader Johnson & Johnson, the parent company of Ethicon. The acquisition will allow Medtronic to expand into new areas especially the weight-loss surgery and laparoscopic markets.

The deal values each Covidien share at US$93.22, paid for by US$35.19 in cash and 0.956 Medtronic shares.

The combination, which will leave Covidien shareholders owning about 30 percent of the combined company, is expected to result in at least US$850 million of annual pre-tax cost by the end of 2018. Medtronic said it would keep its operational headquarters in Minneapolis and pledged US$10 billion in US technology investments over the next decade.

Medtronic's deal with Covidien is expected to close in the fourth quarter of 2014 or early 2015. The combined business will have more than 87,000 employees in more than 150 countries.

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