Medtronic-Covidien Deal Faces U.S. Scrutiny

Federal regulators in the United States are seeking more information regarding the proposed deal between Medtronic Inc. and Covidien plc.

The U.S. Federal Trade Commission (FTC) requested “additional information and documentary material” from Medtronic on Aug. 6, according to a Form 8-K filing submitted recently by the company to the U.S. Securities and Exchange Commission (SEC). It is the second request for information sent to Medtronic from the FTC. The company has not specified the type of information the agency is seeking.

The filing states that the request extends the waiting period for the customary antitrust review for an additional 30 days after the companies comply with the FTC, unless it is extended voluntarily by both parties or terminated earlier by the FTC.

“We intend to cooperate fully with the FTC, and we continue to expect the deal to close in the fourth quarter of 2014 or early 2015,” Medtronic spokesman Fernando Vivanco said in a statement to the Boston Globe. “We do not intend to comment on the specifics of the FTC’s request.”

Covidien spokesman Peter Lucht also told the Globe, “Obviously, we’ll cooperate with the FTC, and still expect to close within the timetable that was previously announced.”

Medtronic in June announced plans to purchase Covidien for $43 billion in cash and stock and redomicile from the United States to Ireland in a process called a tax inversion.

The deal is one of the biggest in the recent wave of inversions involving large American companies in the healthcare sector. The trend has drawn concern from U.S. lawmakers, the U.S. Treasury Department, and the White House.

President Barack Obama recently encouraged government officials to curb the controversial practice of allowing U.S. companies to pay lower corporate taxes by relocating overseas.

“We don’t want to see this trend grow,” Obama said, according to Bloomberg. “We don’t want companies who have up until now been playing by the rules suddenly looking over their shoulder and saying, you know what, some of our competitors are gaming the system and we need to do it, too.”

In an interview with Modern Healthcare, Medtronic CEO Omar Ishrak said the deal to acquire Covidien is a fundamental business strategy and not a tactic to dodge taxes. Ishrak said that Medtronic is “developing new ways for hospitals and devicemakers to be partners in the evolving value-based healthcare environment.”

A handful of pending measures in Congress, as well as additional penalties under existing tax policies to be enforced by the Treasury Department, may make it more difficult for American firms that plan to move their tax base abroad.