Minnesota Pension Board Withholds Support of Medtronic-Covidien Deal

MINNEAPOLIS (Minneapolis Star Tribune/TNS) -

The Minnesota retirement board will not support a $48 billion corporate deal that will relocate legal headquarters of the state’s largest medical-technology company, Medtronic, to foreign shores.

A four-member subcommittee of the state Board of Investment decided Friday morning not to vote in favor of Medtronic’s acquisition of Dublin-based health-care supplier Covidien during shareholder voting this week. Critics on the committee said they were concerned that the stock-and-cash transaction would help Fridley, Minn.-based Medtronic avoid taxes while providing “preferential” tax perks to executives.

Medtronic and Covidien shareholders will vote Tuesday on whether to approve the deal. The state retirement board can participate because it controls 117,130 Medtronic shares and 427,825 Covidien shares through its various retirement and trust funds. Board rules say its staff needs committee approval before casting proxy votes in controversial cases.

The Medtronic deal has proved controversial because it is structured as a corporate inversion that will move the combined company’s legal address to Ireland, while leaving “operational” headquarters in Minnesota. Such deals have been criticized for helping multinational companies avoid domestic taxes.

Medtronic management is also urging shareholders to support the company paying an estimated $73 million to cover special excise taxes on executive stock options that will come due as part of the inversion. Board members said there was clear precedent to vote against deals that contain an executive “golden parachute.”

Leading opposition to the proxy vote was the attorney general’s appointee to the committee, Christie Eller, deputy attorney general, while leading debate in favor of the deal was Emily Johnson Piper, the governor’s deputy chief of staff. Since the four-member committee deadlocked on the issue, the state will abstain from voting in Tuesday’s elections.

It’s not clear that the state’s decision will be anything more than symbolic, since the state owns a very small fraction of the two companies.

On Tuesday, Medtronic needs approval from the owners of half of its 984 million outstanding shares, and Covidien needs a Yes vote from owners of three-quarters of its 453 million shares. If shareholders vote in favor, the deal will go to the Irish High Court, which is expected to spend several weeks deciding whether to grant final approval of the sale.