European regulator approves Medtronic-Covidien $42.9-bn deal

Medtronic Inc, the world's fourth-largest medical device company, today received European Union regulatory approval for its proposed $42.9-billion acquisition of Dublin-based Covidien Plc on condition that it sells its Irish rival's drug-coated balloon catheter business.

The approval comes a day after the US regulator approved the deal on similar conditions. (See: Medtronic's $42.9-bn Covidien deal approved by US regulator)

The has now been approved by regulators in the US, the EU and Canada, but has yet to be approved by China and certain other countries.

The European Commission (EC) said the approval is conditional upon the divestment of Covidien's Stellarex, a promising drug coated balloon currently in development, which, once launched, would compete with Medtronic's leading drug coated balloon device In.Pact. 

The EC said that it ''had concerns that the transaction would have removed a credible future competitor of Medtronic and reduced innovation in this area.''

The EC examined the competitive effects of the proposed acquisition in particular on the markets for peripheral vascular and electrosurgical devices, where the companies' activities overlap.

Peripheral vascular devices such as stents, PTA balloon catheters and embolic protection devices, are used in the treatment of diseases caused by cholesterol-containing fat or blood clots accumulated in the vessels. Electrosurgical devices are used for performing parts of surgery with the use of electric current.

The EC's investigation indicated that the transaction would raise no competition concerns, except in the market for drug coated balloons. There are few competitors currently active in this market and they exert limited competitive pressure on the market leader, Medtronic.

''It is likely that Covidien would have constrained Medtronic in the near future, in view of the promising first clinical trials' results of Stellarex, its drug coated balloon in development. The acquisition, as initially notified, would therefore have eliminated a credible competitor and would likely have reduced innovation in this area,'' the EC said in a statement.

In order to address these concerns, Medtronic has already agreed to sell Covidien's worldwide Stellarex business, including manufacturing equipment, related IP rights and scientific and regulatory material to Colorado-based Spectranetics Corp.

In June, Medtronic struck a deal to buy Covidien for $42.9 billion in cash and stock in order to relocate to Ireland and use profits it makes outside of the US.

Medtronic, based in Minneapolis, had emphasised that the transaction is not an inversion deal where US pharmaceutical companies have recently acquired or attempted to buy overseas peers in order to domicile themselves outside the US to save on higher taxes in their home country.

Medtronic develops and manufactures devices and therapies to treat more than 30 chronic diseases, including heart failure, Parkinson's disease, urinary incontinence, Down-Syndrome, obesity, chronic pain, spinal disorders, and diabetes.

The 65-year old company, which operates in more than 140 countries and employs over 46,000 people, posted a net income of $3.5 billion in 2013 on revenues of $16.6 billion.

Covidien, the $42.4-billion healthcare products company, makes a diverse range of industry-leading product lines in three segments - medical devices, pharmaceuticals and medical supplies.

Formerly Tyco Healthcare, Dublin-based Covidien is one of the world's largest producers of bulk acetaminophen, the largest supplier of opioid pain medications in the US, and is among the top 10 generic pharmaceutical manufacturers in the US, based on prescriptions.

The company posted net profit of $1.7 billion in 2013 on revenues of $19.2 billion.

A merged company will have 87,000 employees, a presence in more than 150 countries, and have combined revenues of $13 billion from outside the US, of which $3.7 billion will be from emerging markets.

The deal will also bring in annual pre-tax cost synergies of at least $850 million by the end of fiscal year 2018.