Medtronic, the world’s largest medical technologies company, recently made headlines when the Minneapolis-based company bought the Irish healthcare products company, Covidien, for nearly $43 billion.
The purchase, according to Medtronic executives, will enable the company to invest more aggressively, cut back taxes drastically, and thus create a bigger profit for shareholders—but the investors themselves have not been so quick to celebrate.
See, Medtronic allowed the foreign company to keep a 20% stake in the merger in order to keep the majority of its profits overseas free from American taxes. This move, called an inversion, qualifies as a “taxable event,” and the company’s shareholders are the ones left with the bill—as much as 33 cents on the dollar.
Medtronic urges shareholders, especially individuals, to remain patient as the long-term benefits of the recent acquisition begin to emerge. But this promise hasn’t satisfied everyone. The repercussions of this transaction are complicated, and many individual shareholders find themselves unsure of their next move. Some are resigned to carry the tax burden but aren’t sure how to prepare for it; others are thinking they might have to reluctantly unload their stock in the company, which has long dominated the global market for healthcare products. To make things even more complicated, not every shareholder will be impacted in the same way—for example, those who own Medtronic stock in tax-deferred accounts (like IRAs) won’t even feel the effects of the acquisition until they start tapping these accounts.
Confused? Don’t worry—you’re not alone.
The bottom line is this: Medronic shareholders should consult a tax professional. Implications may vary from person to person, and you don’t want to find yourself on the losing end of a deal that could have, if handled with care, become profitable in the end.