Medtronic Inc. will pay $42.9 billion to acquire the Irish surgical-device maker Covidien, leading it to relocate its official headquarters to Ireland from Minnesota to take advantage of substantial tax benefits.

The combined firm will become the world's second-largest medical products company after Johnson & Johnson, offering a broad sweep of products used in hospitals and operations around the globe.

It will be led by Medtronic Chairman and CEO Omar Ishrak and will maintain its operational headquarters in the Twin Cities, where 8,000 employees now work. It doesn't appear that Ishrak or other top executives would have to move from their Fridley offices to Dublin.

Covidien, although incorporated in Ireland under Irish tax laws, runs its operations out of offices in Massachusetts.

Ishrak also told Gov. Mark Dayton that the move would result in more Minnesota jobs.

Sen. Al Franken issued a statement Monday saying that, while Ishrak told him more jobs would result in Minnesota, moving abroad could result in a loss to taxpayers. "This needs careful scrutiny, and I plan to take a very close look at the specifics in the coming days," Franken said.

The deal announced Sunday, which has been in the works since early April, is the largest acquisition by Medtronic and expected to close late this year or early next year.

Shares in Covidien were up 20 percent in midday trading on Monday, while shares in Medtronic were down 3 percent. S&P said it may lower Medtronic's debt rating as a result of the deal.

"This transaction makes sense but not in the traditional way," wrote David R. Lewis, lead medical-device analyst at Morgan Stanley. "This deal is about Medtronic's structural position, access to cash and the future of device distribution, which we believe will change."

While attention has focused on the prospective tax advantage for Medtronic, Ishrak said in an interview on Sunday that the firm's tax rate would remain about the same, though the deal would allow it to better use profits made overseas. Medtronic has managed its tax expense in the past by leaving abroad the profits earned by its non-U.S. subsidiaries.

As of the end of its fiscal year in April 2013, the last full disclosure available in Securities and Exchange Commission filings, Medtronic hadn't recognized U.S. tax expense for approximately $20.5 billion of undistributed earnings from its non-U.S. subsidiaries. "This is about getting access to those undistributed earnings in a way that doesn't trigger U.S. taxes," said Robert Willens, a corporate tax consultant in New York.

Both Medtronic and Covidien already pay well below the U.S. corporate tax rate of 35 percent. Covidien's tax expense in the latest three full fiscal years ranged from 14.7 percent to 21.1 percent. And Medtronic's tax rate ranged from 17.3 percent to 18.4 percent in its last three fiscal years.

"It's not about the tax rates," said Ishrak of the merger rationale. "The overall tax rate of the combined companies will be no different."

Ishrak explained that the combination will create financial flexibility with the capital generated through the profitability of the combined companies, unlike the current situation when avoiding tax expense has meant that profits earned abroad have not been repatriated and invested in the United States.

Ishrak cited Sunday's $10 billion commitment to fund investments in the U.S. over the next ten years as an example of what will be enabled by greater financial flexibility.

"The only thing we get is the cash flow that is generated by the Covidien legacy company," he said. "Medtronic can use this cash flow to invest in the U.S."

More Minnesota focus?

Gov. Dayton's office said Medtronic told the governor it intends to create more than 1,000 new medical technology-related jobs in Minnesota during the next five years, in corporate management, research and development, engineering, and manufacturing.

"That is tremendous news for Minnesota and evidences the company's continued commitment to our state," Dayton said in a statement.

Ishrak repeated the jobs pledge Sunday night, explaining that the Medtronic headquarters in Minnesota "will get even more of a focus" after the merger is completed.

"The current operating headquarters of Covidien in Boston will, in effect, be integrated into Medtronic in Minnesota," he said.

The combined firm will have annual revenues of $27 billion and 87,000 employees in more than 150 countries, according to a joint news release issued by the two firms.

"Our expertise and portfolio of services will allow us to serve our customers more efficiently and better address the demands of the current health care marketplace," Ishrak said Sunday. "We also look forward to welcoming the Covidien team to Medtronic and working together to improve health care outcomes globally."

According to the release, the deal will be a cash-and-stock transaction valued at $93.22 per Covidien share, which closed at $72.02 Friday. Medtronic stock closed at $60.70 per share Friday.

"Covidien and Medtronic, when combined, will provide patients, physicians and hospitals with a compelling portfolio of offerings that will help improve care and surgical performance," said José Almeida, chairman, president and CEO of Covidien, which has 38,000 employees and makes hospital supplies and equipment. "This transaction provides our shareholders with immediate value and the opportunity to participate in the significant upside potential of the combined organization."

'Cash machine'

The Medtronic-Covidien deal will make the combined company a "cash machine," with an estimated $7 billion in free cash flow annually, said Bill George, Medtronic's former chief executive and now a professor at Harvard Business School.

The companies make a "near-perfect strategic fit" that will accelerate Medtronic's growth in vascular therapy and make the company the industry leader in areas like gastrointestinal reflux, respiratory and advanced surgery for several types of cancer, he said.

The deal makes Med­tronic one of the latest U.S. firms to structure an acquisition as an "inversion" to help it lower its U.S. tax burden.

U.S. corporate tax rates can be as high as 35 percent, although most analysts agree Medtronic does not pay anywhere near that. Ireland offers rates as low as 12.5 percent.

A failed $119 billion bid by Pfizer this spring to buy British rival AstraZeneca and gain lower British corporate tax rates helped spotlight the inversion issue. Congress and President Obama are examining ways to stem these types of deals.

Star Tribune staff writer Joy Powell and Bloomberg News contributed to this report. • 612-673-4302 • 612-673-4434