Medtronic-Covidien is blast from M&A advisory past

June 17, 2014

By Antony Currie

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Investment bankers had a rude awakening over the weekend. A mega-merger like the $43 billion cash and stock tie-up Medtronic and Covidien announced on Sunday often provides a feast for a raft of advisory firms. Not this time. The two medical devices companies are only using one each.

Piling on advisers may sometimes cover executives’ backs in case a deal goes bad or incurs the wrath of shareholders. On occasion, extra banks provide separate advice for directors worried that a chief executive may have his own agenda, for example as a big shareholder.

Other times, companies hand out merger roles to keep banks sweet. They may want, for example, to repay support in less lucrative lines of business – not least lending. This tradeoff is one method universal banks like Citigroup and JPMorgan have used over the past decade or more to muscle in on the M&A business. In Comcast’s $45 billion all-stock deal to buy Time Warner Cable, announced in February, Comcast used three advisers, including JPMorgan. Its target had four, one of them Citi.

The Medtronic-Covidien deal, though, is a blast from the advisory past. Traditional M&A leader Goldman Sachs is consigliere to Covidien, while specialist advisory firm Perella Weinberg is at Medtronic’s elbow. Sure, Bank of America is providing finance for the deal. But based on the wording in the deal announcement, that’s all the behemoth is doing, so its M&A folks ought not to get any league-table credit.

Granted, the two merging companies have each used the services of two law firms. Even that’s hardly excessive, though, considering the cross-border tax issues involved in the deal, with Medtronic based in the United States and Covidien in Ireland.

Such complexities would in recent years often have been an excuse to bring in extra financial advisers, too – it’s not obvious why the U.S. antitrust issues in the Comcast-Time Warner Cable deal are that much trickier overall than the international aspects of Medtronic buying Covidien. Employing just one adviser each is old school. Wall Street will be hoping it’s not the start of a lengthy flashback.

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