Medtronic raises €12bn to finance Covidien buyout
US medical device maker Medtronic Inc is raising $16.3bn (€12bn) in a senior unsecured bridge loan to finance its $42.9bn (€31.7bn) acquisition of Dublin-based Covidien Plc, banking sources said.
It comes as London-listed drugmaker Shire has hired investment bank Citi as an adviser, expecting to receive its own takeover approaches following a wave of deals in the healthcare sector, sources familiar with the matter said.
Much of the dealmaking has been fuelled by US companies including Medtronic seeking lower tax rates abroad. With Shire's tax base in Ireland – where effective corporate tax rates are among the lowest in the world – and a mid-sized market value of around $35bn, (€25.8bn) it is seen as a prime target, analysts and bankers believe
Meanwhile, Bank of America Merrill Lynch (BoAML) is the sole initial bookrunner on Medtronic's financing deal, which is one of the bank's biggest loan underwriting commitments to date. BoAML is also acting as the sole lead arranger and sole bookrunner, a senior banker close to the deal said.
Medtronic agreed to buy Dublin-based Covidien Plc and shift its executive headquarters here on June 15 in the latest move by US firms to access lower corporate tax rates abroad.
The company was not immediately available for comment.
BoAML's $16.3bn sole underwriting is bigger than its $15.25bn (€11.26bn) share of the $61bn (€45bn) bridge loan that backed Verizon's acquisition of Verizon Wireless in September 2013, which was underwritten by four banks.
BoAML was also the sole underwriter of a $4bn (€2.95bn) loan for Swiss engineering group ABB's acquisition of US electrical connectors manufacturer Thomas & Betts in March 2012.
A sole underwriting of this size shows confidence in liquid debt markets, which are giving rise to hopes of an M&A renaissance, several bankers said.
"The credit markets are very strong at the moment, which gives comfort on the ability to syndicate the risk if needed," the senior banker said.
Medtronic needed the full $16.3 billion underwriting to show certainty of funds to the Irish stock exchange, the senior banker said.
Moody's Investors Service affirmed Medtronic's A2 rating and put Covidien's Baa1 rating on review for upgrade.
Covidien shareholders will own approximately 30 percent of the combined company, Medtronic said. The combination is expected to result in at least $850m (€628m) of annual pre-tax cost synergies by the end of fiscal year 2018.
Medtronic said it would keep its operational headquarters in Minneapolis and pledged $10bn in US technology investments over the next 10 years. (©Reuters)