Medtronic posted a quarterly profit that was in line with analyst expectations, helped by sales of new heart devices, and said its $42.9 billion purchase of Irish-domiciled hospital products maker Covidien remains on track to close early next year.
Changes in US tax rules aimed at curbing a spate of so-called tax inversion acquisitions have caused investors to question whether the deal would proceed after companies such as drugmaker AbbVie and Irish competitor Shire dropped plans to merge.
But Medtronic executives said they remain fully committed to buying Dublin-based Covidien and are focussed on integration planning.
"We changed our financing, but we didn't change our plan to go forward with the transaction. It didn't affect us as much as the other companies," Medtronic chief financial officer Gary Ellis said in an interview.
The largest stand-alone medical device maker said its second-quarter net earnings fell to $828 million, or 83 US cents a share, from $902 million, or 89 cents, the year before.
Excluding costs for the Covidien acquisition and a charitable donation, Medtronic earned 96 cents a share, in line with the average analyst forecast.
Revenue rose 4 per cent to $4.37 billion, boosted by new products including a miniature implantable diagnostic monitor for the heart called Reveal and the CoreValve replacement heart valve.
The Minneapolis-based maker of defibrillators, spinal implants, insulin pumps and other products reiterated its full-year profit outlook of $4 to $4.10 a share, excluding items, but raised the lower end of its revenue forecast to predict a new range of 4 to 5 per cent growth, adjusted for currency fluctuations.
Medtronic in recent years has struggled with slowing growth in maturing markets for heart and spine devices. Although acquiring Covidien is expected to reduce its overall tax burden, it will also broaden its product offerings.
“We’re in this environment with tough price competition, tough competitors, hospital consolidation. You want to be able to offer a complete package and win the business,” said Edward Jones analyst Jeff Windau.
New US tax rules aimed at deterring tax inversion deals mean Medtronic will need to borrow more money than it originally planned, rather than use overseas cash, to fund the deal.
Yesterday (ON MONDAY), Medtronic and Covidien said their shareholders will vote January 6th on the buyout.
