Medtronic, Covidien Settle Shareholder Suit Over $42.9B Merger

By Jof Enriquez,
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Covidien and plaintiffs recently agreed to sign a memorandum of understanding that led to the putative settlement of a consolidated class action suit. The three consolidated cases were filed earlier by Covidien shareholders who alleged that the company’s proposed merger with Medtronic violated provisions of the United States Securities and Exchange Act of 1934.

According to a regulatory filing dated December 23, “the defendants reached an agreement in principle with plaintiffs in the Consolidated Action, and that agreement is reflected in a memorandum of understanding. In connection with the settlement contemplated by the memorandum of understanding, Covidien agreed to make certain additional disclosures related to the proposed transaction with Medtronic, which are contained in this Form 8-K. The memorandum of understanding contemplates that the parties will enter into a stipulation of settlement.”

Terms of the settlement will be subject to approval by the United States District Court for the District of Massachusetts, which is hearing the consolidated class action suits that include Taxman v. Covidien plc, Lipovich v. Covidien plc, and Rosenfeld Family Foundation v. Covidien plc, according to the filing.

In addition, the filing stated that the additional disclosures to be made by Covidien include supplemental background information about the transaction, as well as details of the illustrative pro forma accretion/dilution analyses made by financial adviser Goldman Sachs.

The memorandum of understanding requires Covidien to submit the additional information to the Securities and Exchange Commission (SEC) ahead of a shareholder meeting scheduled for January 6 to vote on the deal, a Law360 article stated.

According to a previous Bloomberg report, the Rosenfeld complaint filed in August stated that “the proposed transaction is the result of a flawed single-bidder sale process controlled and orchestrated by the company’s conflicted board and management.” The shareholder alleged that the merger with Medtronic will enrich directors and managers of Covidien by almost $96 million in cash at the expense of investors, the report said.

Medtronic and Covidien announced their proposed $42.9 billion merger in June, which will transfer Medtronic’s tax base to Ireland and allow the new company to pay lower corporate taxes.

Following the recent settlement with shareholders and receipt of clearances from multiple regulatory bodies, the Covidien-Medtronic deal is looking more likely to close sometime in early 2015, as expected.