Medtronic Inc. executives reaffirmed their commitment to move the company’s legal headquarters to Ireland through a corporate acquisition, despite public criticism and the threat of changes in the tax code.
The new comments on the planned purchase of Covidien, a surgical supply company, came Tuesday as Medtronic announced its latest quarterly results. Sales jumped solidly in the May-to-July period, but its bottom line was hit by one-time costs, including $41 million it has already spent on the deal.
“We’re certainly standing by the strategic benefits the deal has to offer,” Medtronic chief executive Omar Ishrak said in an interview.
In June, Fridley-based Medtronic said it would pay $42.9 billion for the Dublin-based surgical supply company, the biggest acquisition in its history. The move came after several other U.S. health care companies announced similar plans to buy a company in another country where corporate taxes are lower than the U.S. rate of 35 percent.
Some Medtronic shareholders have voiced concern about the Covidien deal, which is expected to trigger tax liabilities for them because it forces an exchange of shares.
“I was very surprised — stunned, you might say,” said longtime Medtronic investor Lois Powers, 95, of Okoboji, Iowa. Stockholders like Powers may have the chance to voice their concerns when the company holds its annual meeting of shareholders at its Mounds View campus Thursday.
Other critics say the deal could allow Medtronic to avoid U.S. taxes on $14 billion in cash it holds overseas. Minnesotan members of Congress have signed on to several bills to limit “corporate inversion” acquisitions like the proposed Medtronic-Covidien deal, and the federal Treasury Department is examining whether to issue new rules to potentially discourage such deals.
Ishrak said those reactions to the acquisition are not altogether surprising because of what he called “the noise” surrounding it. But company executives aren’t drafting a Plan B if federal rules end up prohibiting the deal.
“The structure that we chose is the most optimum structure based on the laws of today. If the laws change, it’s tough to say” how that could affect the deal, Ishrak said. “We are not spending any time at all speculating as to what those changes could be.”
Since first announcing the deal, Ishrak and other Medtronic executives have said they were not making the deal to avoid taxes and that its strategic benefits, like enhanced innovation and global scope, exist despite the tax situation.
Medtronic’s profit fell 9 percent to $871 million in the quarter ended July 25. Sales rose 4.7 percent to $4.3 billion, led by heart valves and pacemakers, its biggest business.
Most of the decline in profit was related to one-time costs, including $41 million for Covidien-related legal and advisory services and fees to the Securities and Exchange Commission.
Excluding one-time costs, Medtronic’s profit rose 4 percent and beat analysts’ expectations. The company’s shares closed up 0.9 percent at $64.01, near its all-time high.
The company had higher sales in all of its major business segments except spinal products, and Ishrak reaffirmed its overall profit forecast for 2015.
“Overall I think that the company is executing relatively well in a challenging environment and that the quarter was basically in line with Wall Street expectations,” said Joshua Hill, senior portfolio manager with Windsor Financial Group of Minneapolis, a longtime Medtronic stockholder.
International revenue became a more important segment of Medtronic’s business in the most recent period, as overseas sales of devices grew by 3 percent to $1.94 billion. All told, sales of devices in other countries accounted for 47 percent of the company’s worldwide revenue.