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Farallon Capital ups stake in Covidien

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Covidien position

Farallon Capital Management increased its position in Covidien plc (COV) during the third quarter. The stock accounted for 5.06% of the fund’s total portfolio—up from 2.86% of the fund’s 2Q14 portfolio.

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Overview of Covidien

Covidien develops, manufactures, and sells healthcare products for use in clinical and home settings. The Ireland-based company operates its businesses through two segments:

  • Medical Devices
  • US Medical Supplies

Deal with Medtronic

On June 15, 2014, the leading medical device maker Medtronic agreed to purchase Covidien for $42.9 billion in cash and stock. Medtronic will pay the equivalent of $93.22 for each share of COV. This represents a 29% premium to the closing price on June 13. Each share of COV will be exchanged for $35.19 in cash and 0.956 Medtronic shares.

The acquisition has cleared all the necessary antitrust hurdles. It received clearance from the European Union, the FTC (Federal Trade Commission), China’s Ministry of Commerce, and South Korea’s Fair Trade Commission.

Covidien shareholders will vote on January 6, 2015. The companies expect the deal to close by January 2015.

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Medtronic said, “The combined companies will be able to shave at least $850 million from annual costs by the end of fiscal year 2018 by integrating back-office operations, manufacturing, and supply chains.” Also, Medtronic will benefit from lower taxes under the so-called “tax inversion” after it relocates its domicile to Ireland.

Medtronic raised $17 billion in debt to finance the deal.

Covidien’s divestment

In order to obtain the FTC’s approval for the Medtronic–Covidien merger, COV agreed to divest its Stellarex DCB (drug-coated balloon) platform in November. The medical device company Spectranetics will acquire Covidien’s DCB for $30 million.

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COV’s acquisition of Reverse Medical Corporation

In August, Covidien purchased Reverse Medical Corporation, a privately held medical device company focused on expanding the management of vascular disease. COV said, “The acquisition is complementary to Covidien’s existing portfolio and will allow it to leverage existing vascular technologies to compete in the worldwide vascular embolization market, which is growing at a double-digit rate.”

4Q14 results

Revenue increased by 7% to $2.73 billion during the fourth quarter. Diluted GAAP (generally accepted accounting principles) earnings per share were $1.13 versus $0.79 in 4Q13.

Other 3Q14 positions for Farallon

Farallon Capital Management started new positions in Time Warner Inc. (TWX), Tim Hortons Inc. (THI), International Game Technology (IGT), and Cognizant Technology Solutions (CTSH) during the third quarter. The fund increased its positions in DIRECTV (DTV), Allergan Inc. (AGN), and Shire plc (SHPG). Positions sold by Farallon during the third quarter include Yahoo! Inc. (YHOO), Oracle Corp. (ORCL), and Weyerhaeuser Co. (WY).

The next part of this series will focus on Farallon’s new position in Allergan Inc.

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