Merger With Covidien: FINC 5880 Final Paper 1 Medtronic Inc.
Added on 2019-09-25
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Medtronic Inc. Merger With Covidien: FINC 5880 Final Paper1Medtronics Inc.Merger WithCovidienStudent’s Name:
Medtronic Inc. Merger With Covidien: FINC 5880 Final Paper2Introduction:Medtronic Inc., a US based company, in 2014 decided to purchase Covidien PLC,based in Ireland, and move the headquarters to Ireland to become Medtronic, PLC. Thepurchase was almost solely motivated by the tax savings afforded to companies based inIreland at a time when the US corporate income taxes were far higher and the tax lawspunished medical equipment companies further to pay for the new healthcare system. Valuedat approximately $43 billion US, according to the Trefis Team at Forbes in their June 16,2014 article, this was a very rich deal aimed squarely at the balance and the reach it wouldprovide. The merger closed in January of 2015 and with the fiscal year end of Medtronicbeing in April, the balance sheet was reflected in the 2015 annual report and the full impactof the acquisition with the income statement was seen in the 2016 annual report. Medtronic was also motivated by the strong balance sheet of Covidien, includingbillions in cash, that was not producing a significant return on assets or equity yet providedcomplimentary products and services. There did not seem to be an overlap of products orservices which meant few loss of employees while the reach of the combined companieswould be far greater. There were clear synergies and efficiencies to gain. As Sarah Collinsstated in her April 1, 2016 article in marketrealist.com, “Medtronic’s (MDT) acquisition ofCovidien in January 2016 positioned the company as the biggest player in the medical deviceindustry. It almost doubled the size of its business. The strategic fit of the acquisition createdopportunities for increased cash flows and reduced costs due to operational efficiency by thecomplementary businesses and product lines.” During the same, in 2015, Medtronic also acquired Diabeter, a diabetes researchcenter and clinic in the Netherlands. Based on the balance sheet’s growth of the goodwill lineitem, it’s clear that Medtronic is attempting to increase reach and revenue throughacquisition. Company overview: Medtronic was the largest provider of products in the cardiovascular industry,however the industry was moving towards a full value solutions approach and Medtronic didnot have the time to develop that on their own. Medtronic was the largest medical equipmentprovider in the US. With the smaller acquisitions and the large $43B acquisition of Covidien,
Medtronic Inc. Merger With Covidien: FINC 5880 Final Paper3Medtronic soon provided other services such as emergency room management andadministration at a lower cost than what most hospitals could do on their own. The combinedentities would have access to over 150 countries with medical equipment, supplies, andservices with over $28B in revenues in 2016. As a result of the large cash position mostlyheld overseas, Medtronic committed to a $10B investment in research in the US by 2018. For this report, a ratio analysis study has been performed for Medtronic, however, thefinancial data of Covidien for 2013 was used to reflect the before and after consequences ofthe merger. Merck was used for size standard as little industry wide data was used. Theindustry is consolidating and there although they are all headed in the same direction, fewhave identical assets producing similar amounts of services and products exclusive orinclusive of one another. Ratio analysis: Ratio analysis is used to analyze a company’s financial position, performance, and aquantifiable method for confirming management’s statements.Following are the ratioanalysis study of Medtronic including the financial data of Covidien prior to the merger andMerck for comparison. The data was from their annual corporate report without taking intoaccount any operations that may have been or are being planned to be discontinued. Thefigures in the table with the financial statement figures are in US Dollars. It is important tonote that the merger was closed in January 2015 and Medtronic’s fiscal year end is April.Therefore, the balance sheet reflected the changes in the FYE 2015 figures and the full affectof the income statement was seen in FYE 2016.Financial Data for Medtronic, PLCDescriptionI/S MergedB/S Merged Jan%ChangeYearend Apr-16Apr-15Apr-14Apr-132016 to2014Revenue2883320,261 17,005 16,590 70%Cost of goods sold91426,309 4,333 4,126 111%Gross profit1969113,952 12,672 12,464 55%Operating profit52913,766 3,813 4,402 39%Net profit43362,675 3,065 3,467 41%
Medtronic Inc. Merger With Covidien: FINC 5880 Final Paper4EBITDA9,921 5,191 4,830 5,156 105%Interest (net)1386280 108 151 1183%Taxes Paid1379632 521 537 165%Inventory34733,463 1,725 1,712 101%Current assets2360030,844 21,210 17,852 11%Receivables 55625,112 3,811 3,727 46%Current liabilities71659,173 5,559 3,950 29%Payables17091,610 742 681 130%Equity5206353,230 19,443 18,671 168%Total liabilities4771953,455 18,500 16,229 158%Total assets99782106,685 37,943 34,900 163%RestructuringCharges290237 78 172 272%Litigation Charges2642 770 245 -97%Acquisition Related283550 117 (49)142%Amortization1931733 349 331 453%Depreciation889573 501 488 77%Total Debt3124036,186 11,928 10,651 162%Interest Expense1386578 394 333 252%Medtronic Stock $211.37203.06 149.62 116.80 41%S&P 500 168.63169.15 145.85 121.27 16%S&P Med Equip Index187.89177.23 134.57 113.00 40%Medtronic shares out1425.91,109.00 1,013.60 1,027.50 41%Net Income per share3.04 2.41 3.02 3.37 1%Medtronic P/E ratio69.51 84.18 49.48 34.62 40%Medtronic 90%
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