Ireland can expect further investment in the longer term under the merged Medtronic/Covidien medical device group, chairman and chief executive Omar Ishrak has said.
The new Medtronic, which is domiciled in Ireland following a $49.9 billion acquisition of Irish-based rival Covidien, began trading on the New York Stock Exchange yesterday.
The acquisition by way of the largest corporate inversion to date was subject to sustained criticism in Congress last year but Mr Ishrak insists that cutting the company’s tax bill was not a motivating issue for the company.
“This is not about tax rate at all. We are a global business and our tax rates are very close to each other. The legacy Medtronic tax rate is about 18 per cent, Covidien is about 16 [per cent], so we are going to settle probably a couple of percentage points [below] what we were as only Medtronic, but that is not a significant amount. That is not a real factor in this whole thing.”
Cash flow
What the deal does provide is access to cash flow generated abroad by Covidien and from the combined group going forward. Some will be returned to shareholders but the company has also committed to invest $10 billion “fairly aggressively” back into medtech in the United States over the next decade where Mr Ishrak says “there is a lot of activity and a dearth of investment”.
He said Medtronic would continue to work with the US Congress on the issue of inversion, “because it is still an important factor for us. Thirty or 40 per cent of our cash remains trapped outside the US, including cash that we have already generated of $14 billion.”
Mr Ishrak says Ireland will inevitably be a higher-profile part of the group by virtue of its domicile in the country.
“Ireland will get more focus. We are going to have four board meetings a year there, and I really want to make these board meetings into real productive sessions where we have employee engagement.”
He said the Irish business had grown over the years and “they have delivered. They are one of our best factories and best centres of excellence and we are looking forward to what we can do with the team there and the extra focus that this will provide.”
The merged company employs about 4,000 people in Ireland.
Aside from the legacy Medtronic vascular plant in Galway, Covidien has businesses in Athlone, Galway and Tullamore as well as its European services centre in Cherrywood in Dublin.
Mr Ishrak said the products coming from the group’s Irish business were high-growth items. “We expect this to be a growth company and a lot of that growth is going to be fuelled by products coming out of Ireland,” he said. “The sorts of volumes we are talking about over the longer term will have to include growth of those facilities in delivering the volumes we are looking for.
Irish investment
“We really would like to make Ireland into a premier world-class hub for Medtronic,” Mr Ishrak said, adding that, “for the size of the local market, Ireland will get a very disproportionate amount of investment”.
More broadly, Mr Ishrak said he was confident of delivering the promised $850 million annual savings from 2018 in what is, by a long distance, Medtronic’s largest acquisition.
While there will be redundancies, Mr Ishrak said few, if any, were likely to impact the Irish operation, with job cuts likely to be concentrated in the Boston corporate headquarters of the former Covidien business.
