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Medtronic Merger Means HQ Move from Minnesota, No Job Losses

Updated: 06/16/2014 7:17 PM
Created: 06/16/2014 7:08 PM KSTP.com
By: Tom Hauser

In 1949, Medtronic had its humble beginning in Minneapolis. By 2014, it's a mammoth medical device manufacturer with operations around the world and 38,000 employees, including 8,000 in Minnesota. 

However, the phrase "Minneapolis-based Medtronic" will soon be replaced by "Dublin, Ireland-based Medtronic." That will be one impact of Medtronic's $42.9 billion acquisition of Covidien, another medical device company incorporated in Ireland.

"I think at the beginning and at the end, this deal is about taxes," says Paul Vaaler, a professor at the U of M's Carlson School of Management. As part of the deal, Medtronic will move its official corporate headquarters to Ireland, while its operational headquarters will remain in Minnesota.  "It moves Medtronic's effective corporate tax rate from that of the U.S. and Minnesota...to that of Ireland and that lowers the tax bill of Medtronic," according to Vaaler.

In a video message to employees, Medtronic CEO Omar Ishrak says it's about more than taxes. He also cites a good strategic synergy with Covidien.

"Covidien's impressive array of industry-leading products enhances our existing portfolio and creates exciting entry points into new therapies," Ishrak told employees. He also says as part of the deal Medtronic will commit to invest $10 billion in U.S. technology and research and development over the next decade.

As a result, Ishrak says Minnesota will not only retain its 8,000 Medtronic workers, but could add another 1,000 over the next several years. "I was reassured over the weekend by the chief executive officer and others on my staff, by other people at Medtronic, their plan is to keep all the existing jobs," Governor Mark Dayton told reporters Monday.

By moving the corporate headquarters to Ireland, Medtronic will take advantage of that country's 12.5 percent corporate tax rate. The comparable tax rate in the United States is 35 percent. "So what this does overnight is kind of turn Medtronic into a fake foreign company," says David Vang of the University of St. Thomas. 

It's all legal and increasingly common. More than three dozen American companies have made similar moves in recent years to avoid higher U.S. tax rates. Medtronic expects it's deal to acquire Covidien to close by late 2014 or early 2015.


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