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Antitrust approvals: Assessing the Covidien-Medtronic merger

Brent Nyitray, CFA, MBA

Key overview: Merger arbitrage and the Covidien-Medtronic deal (Part 7 of 10)

(Continued from Part 6)

The deal is generally complementary

The Covidien (COV)–Medtronic (MDT) deal is based on complementary products, not necessarily buying out a competitor. The first thing arbs do when conducting an initial merger arbitrage analysis is to go the companies’ respective 10-Ks (or annual reports) and search for the word “competition.” As a general rule, companies will name who their biggest competitors are in the overview of the business. If the counterpart is mentioned in the 10-K, arbs will generally refer to them as a “named competitor.”

Covidien’s named competitors

In the Medical Supply area, Covidien’s biggest competitors are Becton Dixon (BDX), C.R. Bard (BCR), as well as private label suppliers such as Cardinal Health (CAH) and Medline.

In the Medical Devices are, its biggest competitors are Johnson and Johnson (JNJ), Boston Scientific (BSX), C.R. Bard (BCR), and Baxter (BAX).

So, from the Covidien side of things, Medtronic isn’t mentioned as a competitor

Medtronic’s named competitors

In the Cardiac and Vascular group, Medtronic’s biggest competitors are St. Jude Medical (STJ), Boston Scientific (BSX), Abbott Labs (ABT), Edwards LifeScience (EW), Trivascular Technologies (TRIV), Lombardi Medical, Cook, WL Gore, Biotronic, and Sorin.

In the Restorative Technologies Group, its biggest competitors are Johnson and Johnson, Stryker (SYK), Nuvasive (NUVA), Zimmer (ZMH), Alphatec (ATEC), K2M Group (KTWO), LDR Holdings (LDH), Allergan (AGN), Uroplasty (UPI), Astellas Pharma, Integra Lifesciences (IART), Covidien (COV), Smith and Nephew, Conmed, Smith and Nephew, Olympus, and Biomet.

In Diabetes, its biggest competitors are Johnson and Johnson, Dexcom (DXCM), Insulet Corp. (DODD), Hoffman-Laroche, and Tandem Diabetes Care (TNDM).

Areas of overlap

So, from the named competitors, it appears there’s at least one area where Covidien and Medtronic compete—the Surgical Technologies segment, which accounted for 10% of Medtronic’s revenue last year. In Surgical Technologies, it’s in the Advanced Energy (a subset of Surgical Technologies) area that’s used for sealing soft tissue and bones. In the advance area segment, the named competitors are Johnson and Johnson, Smith and Nephew, Stryker, Olympus, Conmed, and B Braun Medical.

So, it does appear there’s at least some sort of overlap. On the plus side, it looks like there are some big competitors in the space (Johnson and Johnson, Smith and Nephew, Stryker), which will give the antitrust authorities some comfort. It’s too early to tell if there’s a problem, but even if there were and the antitrust authorities demanded a divestiture, it doesn’t look like it would kill the rationale for the deal.

Continue to Part 8

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