Medtronic can’t shake shareholder suit over Covidien merger

A Minnesota state court last week gave a group of Medtronic (NYSE:MDT) shareholders another chance at a lawsuit brought over its $50 billion acquisition of Covidien.

In early 2015 Medtronic closed the Covidien deal, consummating in the biggest medical device acquisition ever. Shortly after the deal was announced during the summer of 2014, shareholder Lewis Merenstein sued in Minnesota’s Hennepin County District Court, arguing that the proposed merger’s conversion of Medtronic stock into the new stock of the combined company “will result in a substantial loss to Medtronic shareholders” and seeking class-action status.

The deal saw Medtronic pay $93.22 per share for Covidien, with COV share converted to the right for $35.19 in cash and 0.956 MDT shares, leaving Covidien stockholders with about a 30% stake in Medtronic, the world’s largest-pure-play medical device company.

“Medtronic stockholders will be forced to pay taxes on any gains in Medtronic stock,” according to Merenstein’s original complaint. “But because the sale does not generate cash proceeds that would allow stockholders to pay the taxes, Medtronic stockholders who have held the stock for over a year could see federal tax rates of 15% to 30% on the gain.”

The Minnesota Appeals Court ruled that the lower court should not have tossed 11 of the 12 claims in the Merenstein suit in 2016, remanding the case back to the Hennepin County court. Medtronic appealed that decision to the Minnesota Supreme Court, which in August 2017 sent the case back to Hennepin County. There Judge Frank Magill tossed three of the suit’s nine claims alleging unjust enrichment, conspiracy to aid and abet unjust enrichment and conversion against Medtronic and its management. Magill allowed the other six claims to proceed.

The lawsuit, which could involve claims worth more than $16 billion, aims to win damages now that it’s too late to block the Medtronic-Covidien union, plaintiff’s attorney Vernon Vander Weide told the Minneapolis Star Tribune.

“We intend to vigorously defend against the plaintiffs’ surviving claims, which we believe are meritless and should ultimately be dismissed,” Medtronic spokesman Fernando Vivanco told the newspaper via e-mail. “Medtronic’s acquisition of Covidien was undertaken for strategic reasons, has created a company that has provided value for shareholders and is positively impacting the lives of more patients, in more ways and in more places around the world.”

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