Medtronic Inc. CEO Omar Ishrak on Thursday faced down jeers and tough questions from longtime shareholders upset about the personal tax implications of the Minnesota-based company’s proposed relocation to Ireland.
“It is going to cost many of us hundreds of thousands of dollars. Not just tens of thousands,” said Joe Fetter, 75, a stockholder and Medtronic retiree with 25 years of service. “My wife almost doesn’t believe me when I say this is going to happen.”
At Medtronic’s annual shareholder meeting on Thursday, Ishrak acknowledged to Fetter and about 500 other shareholders in the room that the company’s $43 billion acquisition of Dublin-based Covidien will trigger significant capital-gains taxes for many longtime stockholders.
That’s because the deal will move Medtronic’s legal headquarters to Ireland and cause the issuance of shares of a new company called Medtronic PLC, forcing stockholders to pay capital-gains taxes on any value their Medtronic shares have gained since purchase. Like many retirees and longtime investors, Fetter bought shares between $5 and $10. On Thursday, the shares closed at $64.10.
“We understand what some of the concerns are,” Ishrak said from the podium during a contentious question-and-answer session with investors. “We believe that doing this (acquisition) will allow us to reach many more patients throughout the world … Through that, we believe the value of the company will grow.”
Although the meeting kicked off with an emotional presentation on how Medtronic products extend lives, the question-and-answer session had the audience applauding at several points when speakers criticized the Covidien deal as being unfair to longtime individual stockholders. At one point, Ishrak was jeered by audience members when he announced he would take only one more question with many hands in the crowd still raised. He eventually relented and called on half a dozen more speakers.
Medtronic executives told stockholders they could reduce their tax burdens by donating parts of their holdings to charities or family trusts, rather than selling them, but each person’s situation will be different.
Several speakers said that in practice, most stockholders will end up selling some of their shares just to pay the taxes, which will cut the dividends they had been planning on using in retirement.
The argument that a smaller, more-valuable stock portfolio would benefit stockholders in the long run was cold comfort for aging audience members who may not have years or decades to wait.
“I don’t know if it’s going to rise fast enough to benefit the individual investors, and that’s why everyone is so angry. It’s going to be an immediate hit,” said former Medtronic employee Brenda Roane.
On Friday, the shares dropped 51 cents to close at $63.59.