Medtronic hires ex-senators to lobby bills that could kill Covidien deal

  • Article by: JIM SPENCER , Star Tribune
  • Updated: August 13, 2014 - 6:53 AM

Medtronic Inc. has hired two former U.S. senators to lobby their ex-colleagues against legislation that could undermine the company’s plans to move its headquarters overseas through a merger, saving it billions in taxes.

Public records show that Medtronic has paid a firm led by former Sens. Trent Lott and John Breaux $200,000 to discuss bills in the Senate and House that would restrict the transplantation of corporate headquarters abroad to save on U.S. taxes, known as inversion deals.

The involvement of the Breaux-Lott Leadership Group comes amid escalating controversy and public backlash over tax-advantaged corporate relocations like Medtronic’s proposed $42.9 billion acquisition of the Irish company Covidien. President Obama has called the trend unpatriotic and asked Congress to pass laws to stop it.

Norm Ornstein, a congressional expert at the American Enterprise Institute, called Medtronic’s hiring of Breaux and Lott an investment of “minibucks” in lobbying “to save megabucks from their tax bills.”

The Fridley-based company’s public filings say that Breaux and Lott will work on bills under consideration that could undo the Covidien purchase as it is now proposed.

“Medtronic routinely employs outside counsel to represent its interest to public policymakers,” a spokesman said in an e-mail to the Star Tribune. “This firm was hired to provide public policy representation and was disclosed fully as required. Our position is we can’t speculate on what might happen but continue to follow the discussions in Washington, D.C., closely and are actively engaging with policymakers on the issues related to our proposed acquisition.”

The Breaux-Lott Leadership Group, which is owned by one of Washington’s most powerful law firms, Patton Boggs, did not return a call seeking comment. Breaux is a former Democratic senator from Louisiana, and Lott is a former Senate majority leader, R-Miss.

‘Savvy figures’

Ornstein said the two are “savvy political figures” who can give Medtronic “a sense of timing” of when and how Congress and the White House might act.

Even as it employs Breaux and Lott, Medtronic steadfastly maintains that its prime motive in buying Covidien is a strategic merger of two medical device companies that will better serve patients. Medtronic CEO Omar Ishrak and Covidien CEO Jose Almeida have been traveling the country to worksites of both companies, emphasizing that message.

A copy of an Aug. 8 presentation in Louisville, filed with the Security and Exchange Commission (SEC), does not even mention the word “tax” until the fine print of a section titled “Disclaimers.”

But the Medtronic-Covidien merger agreement, also filed with the SEC, lists “no change in applicable [tax] law” as a condition for completion of the purchase.

Other lobbying urged

In addition to Breaux and Lott, public records show that Medtronic dispatched others to lobby on the Stop Corporate Inversion Act of 2014 in the Senate and related bills in the House. Those bills would treat companies that relocate abroad as U.S. companies for tax purposes if their ownership is less than 50 percent foreign and if most of their management and a significant part of their operations continue to take place in the United States.

The new rules would be retroactive, in effect from May 8, 2014, to May 8, 2016. In those circumstances, the Medtronic/Covidien deal could not take place in its current form, and many analysts think that as a practical matter it would be dead.

Minnesota’s U.S. senators, Democrats Amy Klobuchar and Al Franken, are cosponsors of the Senate bill. Democratic Reps. Rick Nolan, Betty McCollum and Keith Ellison are cosponsors of related House bills.

So far, legislative efforts to restrict foreign incorporations of companies primarily located in the U.S. have stalled. Faced with congressional gridlock, the Treasury Department is considering regulatory options. Chief among them are rule changes that would take away the ability to funnel money from new foreign headquarters back to the U.S. in the form of loans whose interest can be written off, thus avoiding U.S. taxes.

 

Jim Spencer • 1-202-383-6123

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