Amid Medtronic’s Move, MN Remains A Med-Tech Leader
When Medtronic, Inc., announced plans to make a $42.9 billion acquisition and relocate its legal headquarters to Ireland, much attention was given to how the move may impact the local workforce of one of Minnesota’s largest public companies, and it stoked the ongoing debate over corporate taxes.
But along with assurances that Medtronic’s Minnesota presence will remain intact as the company acquires another major industry player, there is significant evidence that the state remains—and should continue to remain—a national leader in medical technology.
TCB Editors Go On Air To Weigh In On Medtronic Deal
Local news media tapped Twin Cities Business editors on Monday for insight on Medtronic's planned $42.9 billion acquisition and relocation of its legal headquarters. Hear their conversations on Kare 11 news and WCCO radio here.
Medtronic plans to buy Covidien through a so-called “tax inversion” deal, after which the combined firm’s legal headquarters would be located in Ireland, where Covidien’s current headquarters resides. Medtronic said, however, that its “operational headquarters” will remain in the Twin Cities, where it employs more than 8,000 people. A Medtronic spokesperson told Twin Cities Business that the company's top leaders, including its CEO, will remain in Minnesota. If anything, Medtronic may move a handful of administrative employees to Ireland, he said. He also pointed out that Medtronic already employs roughly 2,800 people in Ireland across various facilities.
In recent years, even before Medtronic’s latest announcement, some have voiced concerns that Minnesota might be ceding its status as a national med-tech leader. Huge industry players are increasingly investing in overseas operations, and startups face new hurdles in introducing products. But despite ongoing industry changes (and challenges), Minnesota actually ranks first in the nation when it comes to med-tech jobs per capita.
A recent Twin Cities Business feature story examined the current state of Minnesota med-tech, finding that in 2012, the most recent data available, the state’s medical device firms employed 29,060 people, up 27 percent from 10 years earlier. The jobs reportedly pay an average salary of close to $88,000 a year.
In terms of the number of medical device and equipment manufacturing firms and employees, California ranks first in the United States—and Minnesota ranks second, ahead of Massachusetts, according to a June 2012 Battelle/Bio State Bioscience Industry Development report. Furthermore, Minnesota saw a 54 percent increase in its number of medical device companies between 2001 and 2010, while California and Massachusetts experienced decreases of 12 percent and 8 percent respectively.
One example of positive growth in the local med-tech scene: Cardiovascular Systems, Inc., is planning a $30 million expansion and intends to add hundreds of new Twin Cities jobs.
When announcing the Covidien deal, Medtronic was quick to emphasize that it will continue to focus on domestic operations following the acquisition. The company said the deal will allow it to tap into its reserves of cash that are currently stored overseas, at a lower tax rate, and it will commit $10 billion in U.S. technology investments over the next decade, beyond the two companies’ previously announced plans. Medtronic also informed Governor Mark Dayton that it plans to add more than 1,000 Minnesota jobs during the next five years, in corporate management, research and development, engineering, and manufacturing. Medtronic also reiterated its emphasis on creating new therapy and treatment options.
Medtronic and Covidien said in a joint press release that they will have 87,000 employees in more than 150 countries following the acquisition.
More Companies Take Legal Addresses In Tax-Friendly Locales
While it’s reportedly the biggest U.S. firm to date to renounce its U.S. tax status, Medtronic's move is part of a growing trend. In fact, it's not even the first major Minnesota employer to adopt an Irish address.
Pentair, Ltd., which maintains its primary operations in Golden Valley, recently received shareholder approval to reincorporate in Ireland. While not technically a “tax inversion,” that move also took advantage of the country's lower tax rate.
Medtronic and Pentair share another commonality: Tyco. Covidien was formerly the health care division of Tyco. Pentair, meanwhile, merged with the flow control division of Switzerland-based Tyco International in 2012. That merger resulted in the relocation of Pentair's legal headquarters to Switzerland, which is now moving to Ireland.
Medtronic has told the media that its acquisition was not driven by tax considerations but by the fact that the companies complement one another. But the move has sparked plenty of criticism and also drawn the attention of politicians from both sides of the aisle.
Former Medtronic CEO Bill George defended the company’s decision to complete a tax inversion deal, in a recent video interview with CNBC, which can be viewed below.
Medtronic's current CEO, Omar Ishrak, recently spoke with Twin Cities Business about the health of the med-tech industry in Minnesota, among other things. Read the full Q&A from our “Interview Issue” here.
Medtronic has made a number of recent acquisitions, but none of this magnitude. For example, earlier this year it bought Tyrx, Inc., a New Jersey-based anti-infection technology firm, for an initial $160 million in cash with the potential for future performance-based payments.
Meanwhile, the company's Infuse bone-growth product remains the subject of controversy; the company has paid millions of dollars to settle lawsuits related to the product, although it recently decided not to pursue shareholder claims.