September 23, 2014
By Riley McDermid, BioSpace.com Breaking News Sr. Editor
Major deals in the works for biotech giants Mylan Inc. and Medtronic, Inc. are unlikely to be torpedoed by new guidelines being proposed for corporate inversions abroad, several analysts said Tuesday.Editor
Most analysts remained sanguine about the deals going through, though Deutsche Bank and Citigroup both highlighted how new rules could affect specific deals that have already been done.
“It is unclear whether the moves threaten completion of to be consummated deals, given that other benefits (cost savings, pipeline, expansion, strategic elements) may still be sufficient to justify such deals proceeding and that the extent to which the Treasury changes impact the financial benefits cannot be quantified externally,” Deutsche Bank said in a note on Tuesday.
Medtronic’s $43 billion acquisition of Ireland-based Covidien is unlikely to be scuttled, said Deutsche Bank analysts but it could limit the company’s access to its $13 billion of cash currently held outside the U.S.
Citigroup’s analysts also believed Medtronic could find a way to get around any new inversion rules if it needed to.
“We believe MDT has the means to overcome these proposed changes with only modest dilution and will still pursue the current deal structure,” Citigroup said in a note.
Citi noted that any new rules would probably not impact “spinversions,” like Mylan’s (MYL) recent agreement to buy a portion of Abbott Laboratories generics pharmaceuticals business in an all-stock transaction valued at $5.3 billion.
David Lewis, a biotech analyst with Morgan Stanley, said any new guidelines might make consummating the deal trickier, but will probably not stop it entirely. “Proposed Treasury rules on inversion could impose additional financing costs on Medtronic but do not appear to derail the transaction entirely,” Lewis wrote.
“At this point, renegotiating or restructuring the deal does not appear to be either required or likely,” Lewis wrote. “The announced rule changes do not appear to satisfy the break clause in the merger agreement, which provides that either party can terminate the agreement without paying the $850 million break fee if tax changes would cause (the) new Medtronic to be treated as a U.S. corporation for federal tax purposes.”
