Medtronic buying Covidien

Big news in the medical device world:

U.S. medical device maker Medtronic said on Sunday it had agreed to buy Covidien for $42.9 billion in cash and stock and move its executive base to Ireland in the latest transaction aiming for lower corporate tax rates abroad.

As big as they are, these two companies don't have that much overlap in the products they sell.  Medtronic focuses on cardiovascular, while Covidien does not have many products in that space.  So from that perspective the deal makes sense.  Although one of the main benefits seems to be a tax advantage for Medtronic, when you're paying $42 billion for a company for a tax advantage, I think it is a clear sign that the US corporate income tax is too high.

On the other hand, the stock market is at an all time high, so you're buying a company at its most expensive. If you're buying it with your shares which are also at all time high, then maybe it all works out, but you have to pay the buyout premium of 40% or whatever it turns out to be.

Entertainingly enough a few years ago Covidien bought ev3 (among others) and was still working on re-branding their products world wide, assuming they re-brand to Medtronic, at this rate, they'll never catch up.

Regardless, we'll see how this deal works out in the long run.