State’s high court hears arguments in legal challenge to Medtronic-Covidien deal

By Star Tribune – October 5, 2016

Medical device maker Medtronic moved its legal headquarters to Ireland last year in a controversial $50 billion deal that forced about 20 percent of the people who owned its stock to shell out thousands of dollars each to cover capital gains taxes.

Now some shareholders want the company to cover those costs. First they will have to convince the Minnesota Supreme Court to agree with them that state law does not — or should not — prevent them from being able to bring their lawsuit at all. If they win at the high court, the plaintiffs would still have to prevail in a future trial or get a settlement to see any money.

In oral arguments Wednesday morning at the Supreme Court, the attorney representing Medtronic said the two-year-old class-action lawsuit should never have gotten to the state’s highest court. That is because long-standing Minnesota business law gives boards of directors legal protections so they can run a company without being second-guessed by litigious shareholders.

“The question before you this morning is whether you will abandon the rule of law that has been effectively applied for decades, and embrace a rule of law … that is inconsistent with your most recent statements of public policy,” said Medtronic’s attorney, Eric Magnuson, who was chief justice from 2008 to 2010.

The aggrieved shareholders, however, argue that long-standing rule of law doesn’t address unique situations that can arise during corporate inversions like Medtronic’s.

An inversion happens when a U.S.-based company relocates its headquarters to a lower-tax jurisdiction through a corporate acquisition. In January 2015, Medtronic acquired health care supplier Covidien for $49.9 billion in cash and stock in a deal that put the combined company in Covidien’s old headquarters building in Dublin, Ireland. CEO Omar Ishrak continues to run the company from offices in Minnesota.

Medtronic’s board members knew the inversion would impose taxes on the minority of shareholders whose stock was not protected in a tax-deferred account like an IRA. The board members also knew Medtronic’s management strongly favored of the deal — so much so that the company agreed to cover $69 million in special excise taxes on company officers imposed by Congress to discourage inversions.


Josh Sandberg

Josh Sandberg is the President and CEO of Ortho Spine Partners and sits on several company and industry related Boards. He also is the Creator and Editor of OrthoSpineNews.

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