Medtronic 2016 Annual Report Download - page 33

Table of Contents
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Risks Relating to the Covidien Acquisition (the Transaction)
We may not realize all of the anticipated benefits of the Transactions or those benefits may take longer to realize than expected.
We may also encounter significant unexpected difficulties in integrating Medtronic, Inc. and Covidien.
Our ability to realize the anticipated benefits of the Transaction will depend, to a large extent, on our ability to integrate the
Medtronic, Inc. and Covidien businesses. The combination of two independent businesses is a complex, costly and time-consuming
process. As a result, we will be required to devote significant management attention and resources to integrating the business
practices and operations of Medtronic, Inc. and Covidien. The integration process may disrupt the businesses and, if implemented
ineffectively or if impacted by unforeseen negative economic or market conditions or other factors, we may not realize the full
anticipated benefits of the transaction. Our failure to meet the challenges involved in integrating the two businesses to realize the
anticipated benefits of the transaction could cause an interruption or a loss of momentum in, our activities and could adversely
affect our results of operations.
In addition, the overall integration of the businesses may result in material unanticipated problems, expenses, liabilities, competitive
responses, loss of customer relationships, and diversion of management’s attention. The difficulties of combining the operations
of the companies include, among others:
• the diversion of management’s attention to integration matters;
• difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from
combining the businesses;
• difficulties in the integration of operations and systems;
• difficulties in the assimilation of employees;
• difficulties in managing the expanded operations of a significantly larger and more complex company;
• challenges in keeping existing customers and obtaining new customers; and
• challenges in attracting and retaining key personnel.
Many of these factors will be outside of our control and any one of them could result in increased costs, decreases in the amount
of expected revenues and diversion of management’s time and energy, which could materially impact our business, financial
condition and results of operations. In addition, even if the operations of the businesses of Medtronic, Inc. and Covidien are
integrated successfully, we may not realize the full benefits of the Transaction, including the synergies, cost savings or sales or
growth opportunities that we expect. These benefits may not be achieved within the anticipated time frame, or at all. Furthermore,
additional unanticipated costs may be incurred in the integration of the businesses of Medtronic, Inc. and Covidien. All of these
factors could negatively impact our earnings per share, decrease or delay the expected accretive effect of the transaction, and
negatively impact the price of our ordinary shares. As a result, we cannot assure you that the combination of the Medtronic, Inc.
and Covidien businesses will result in the realization of the full benefits anticipated from the transaction.
Future potential changes to the U.S. tax laws could result in us being treated as a U.S. corporation for U.S. federal tax purposes,
and the IRS may not agree with the conclusion that we should be treated as a foreign corporation for U.S federal income tax
purposes.
Because we are an Irish incorporated entity, we would generally be classified as a foreign corporation under the general rule that
a corporation is considered tax resident in the jurisdiction of its organization or incorporation for U.S. federal income tax purposes.
Even so, the IRS may assert that we should be treated as a U.S. corporation (and, therefore, a U.S. tax resident) for U.S. federal
income tax purposes pursuant to Section 7874 of the U.S. Internal Revenue Code of 1986, as amended (the Code).
Under Section 7874 of the Code, if Medtronic Inc.’s shareholders immediately prior to the Transaction hold 80% or more of the
vote or value of our shares by reason of holding stock in Medtronic, Inc. immediately after the Transaction (the ownership test),
and our expanded affiliated group after the Transaction does not have substantial business activities in Ireland relative to its
worldwide activities (the substantial business activities test), we would be treated as a U.S. corporation for U.S. federal income
tax purposes. Based on the rules for determining share ownership under Section 7874 of the Code, Medtronic, Inc.’s shareholders
received approximately 70% of our ordinary shares (by both vote and value) by reason of holding stock in Medtronic, Inc. Therefore,
under current law, we should not be treated as a U.S. corporation for U.S. federal income tax purposes. However, there is limited
guidance regarding the application of Section 7874, including the application of the ownership test.
In addition, changes to Section 7874 or the U.S. Treasury regulations promulgated thereunder could affect our status as a foreign
corporation for U.S. federal tax purposes. Any such changes could have prospective or retroactive application.
Since Section 7874 was enacted, there have been various legislative proposals to broaden its scope. Such proposals could, among
other things, treat a foreign acquiring corporation as a U.S. corporation under Section 7874 if the former shareholders of the U.S.
corporation own more than 50% of the shares of the foreign acquiring corporation after the transaction, or if the foreign corporation’s
affiliated group has substantial business activities in the U.S. and the foreign corporation is primarily managed and controlled in