The European Commission cleared the proposed acquisition of Covidien by Medtronic under the EU Merger Regulation on 28 November 2014.
Covidien, based in Ireland, is a manufacturer of medical devices with worldwide activities. It has more than 39,000 employees, operates in over 150 countries and has revenue in 2014 of $10.7 billion.
Medtronic is a US-based company active in medical technologies and therapies. It has had a presence in Ireland since 1999, with a state-of-the-art centre of excellence facility in Galway, which is active in the development and manufacture of a number of the company’s medical technologies.
The European Commission has the duty to assess mergers and acquisitions involving undertakings with a turnover above certain thresholds and to prevent concentrations that would significantly impede effective competition in the European Economic Area or any substantial part of it.
The decision is conditional upon the divestment of Covidien's Stellarex, a promising drug coated balloon that is currently in development, which, once launched, would compete with Medtronic's leading drug coated balloon device In.Pact. The European Commission had concerns that the transaction, as initially notified, would have removed a credible future competitor of Medtronic and reduced innovation in this area.
The European Commission's investigation indicated that the transaction would raise no competition concerns, except in the market for drug coated balloons. Medtronic is the market leader in the market for drug coated balloons. It is likely that Covidien would have constrained Medtronic in the near future, in view of the promising results of trials of Stellarex, the drug coated balloon it is developing.
In order to address these concerns, Medtronic committed to sell Covidien's worldwide Stellarex business, including IP rights and the material necessary for ensuring the completion of the trials and regulatory process.
The European Commission also looked at whether the transaction would have allowed the merged entity to propose packages combining medical devices from its expanded portfolio after the acquisition. The European Commission concluded that this was unlikely since, as the devices of Covidien and those of Medtronic are mostly used in different procedures, packages containing products from both would not be of much interest for customers.
The European Commission clearance follows Medtronic’s and Covidien’s agreement to a proposed consent order with the US Federal Trade Commission, which includes a commitment to divest certain assets related to Covidien’s drug-coated balloon product. A subsidiary of Covidien has entered into an agreement to divest these assets to The Spectranetics Corporation and the divestiture is expected to close shortly following completion of Medtronic’s acquisition of Covidien.
Similarly, Medtronic and Covidien have also entered into a parallel consent agreement with the Canadian Competition Bureau regarding the divestiture of assets related to Covidien’s drug-coated balloon product.
Medtronic’s acquisition of Covidien is expected to close in early 2015 after receipt of certain additional regulatory clearances and approvals by the shareholders of both and sanction by the High Court of Ireland under the Irish Takeover Rules.