UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE TO
TENDER OFFER STATEMENT
UNDER SECTION 14(D)(1) OR SECTION 13(E)(1) OF
THE SECURITIES EXCHANGE ACT OF 1934
EV3 INC.
(Name Of Subject Company (Issuer))
COVIDIEN GROUP
S.A.R.L.
COV DELAWARE CORPORATION
(Names of Filing Persons (Offerors))
Common Stock, par value $0.01 per share
(Title of Class of Securities)
26928A200
(CUSIP Number of Common Stock)
Michelangelo
Stefani
Covidien Group S.a.r.l.
36 Bld Prince Henri
L-1724, Luxembourg
Telephone: +352 266 379 31
(Name, address and telephone number of person authorized
to receive notices and communications on behalf of filing persons)
with copies to:
Paul Kinsella
Ropes & Gray LLP
One International Place
Boston, Massachusetts 02110
Telephone: (617) 951-7000
CALCULATION OF
FILING FEE
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Transaction Valuation
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Amount Of Filing Fee
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Not Applicable*
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Not Applicable*
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*
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A filing fee is not required in connection with this filing as it relates solely to preliminary communications made before the commencement of a tender offer.
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¨
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Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the
previous filing by registration statement number or the Form or Schedule and the date of its filing.
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Amount Previously Paid:
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N/A
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Form or Registration No.:
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N/A
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Filing Party:
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N/A
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Date Filed:
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N/A
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x
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Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.
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Check the appropriate boxes below to designate any transactions to which the statement relates:
x
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third-party tender offer subject to Rule 14d-1.
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¨
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issuer tender offer subject to Rule 13e-4.
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¨
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going-private transaction subject to Rule 13e-3.
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¨
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amendment to Schedule 13D under Rule 13d-2.
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Check the following box if the filing is a final amendment reporting the results of the tender
offer:
¨
The following is a transcript of an investor conference call held by Covidien on
June 1, 2010
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Conference Call Transcript
COV - Covidien Announces Definitive Agreement to Acquire ev3 Inc.
Event Date/Time: Jun 01, 2010 / 12:00PM GMT
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Jun 01, 2010 / 12:00PM GMT, COV - Covidien Announces Definitive Agreement to Acquire ev3 Inc.
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CORPORATE PARTICIPANTS
Cole Lannum
Covidien Plc - VP, IR
Rich Meelia
Covidien
Plc - Chairman, President and CEO
Chuck Dockendorff
Covidien Plc - CFO
Joe Almeida
Covidien Plc - President, Medical Devices
Joe Woody
Covidien Plc - President,
Vascular Therapies
CONFERENCE CALL PARTICIPANTS
Matthew Dodds
Citigroup - Analyst
Adam Feinstein
Barclays Capital - Analyst
Bob
Hopkins
Bank of America - Merrill Lynch - Analyst
David Lewis
Morgan Stanley - Analyst
David Roman
Goldman
Sachs - Analyst
Michael Weinstein
JP Morgan - Analyst
Tao Levy
Deutsche Bank - Analyst
Rick Wise
Leerink Swann - Analyst
Joanne Wuensch
BMO -
Analyst
Joshua Jennings
Jefferies & Co - Analyst
Michael Matson
Wells Fargo Securities
- Analyst
Kristen Stewart
Credit Suisse - Analyst
Glenn Novarro
RBC Capital Markets - Analyst
Thomas Kouchoukos
Stifel Nicolaus -
Analyst
Sachin Shah
Capstone Global Markets - Analyst
Charles Hath
Dotree & Co. -
Analyst
PRESENTATION
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Jun 01, 2010 / 12:00PM GMT, COV - Covidien Announces Definitive Agreement to Acquire ev3 Inc.
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Operator
Good day, ladies and
gentlemen, and welcome to the Covidien investor conference call. My name is Eric. Ill be your audio coordinator for today. At this time all participants are in a listen-only mode and well facilitate the question and answer session at the
end of the presentation. (Operator Instructions). I would now like to turn the presentation over to Mr. Cole Lannum, Vice President of Investor Relations for Covidien. Please proceed.
Cole Lannum -
Covidien Plc - VP, IR
Thanks, Eric, and good morning, everyone. And we really appreciate everyone joining us on such short notice. With me today I have Rich Meelia,
Covidiens Chairman, President and CEO, Chuck Dockendorff, our Chief Financial Officer, Joe Almeida, President of our Medical Devices business segment and Joe Woody, President of our Vascular Therapies business unit.
Some of you may not be as familiar with Joe Woody. I want to just give a brief background on him. Joe joined Covidien about a year ago. He was formerly
the Global President of Advanced Wound Care at Smith & Nephew. He also was the General Manager in their Ortho business in the past. And he also has additional significant medical device experience in sales, operations and executive
management at GE, Acuson, which is now part of Siemens, and Alliance Imaging. And Joe will be speaking in just a few minutes about the transaction we did today.
The press release announcing our tender offer for ev3 was issued earlier this morning and is available on our website and the newswires. While not the
primary topic of this call, we also announced this morning the completion of the sale of our US Nuclear Pharmacies and a definitive agreement to sell our Sleep Therapy product line.
During todays call well make some forward-looking statements and its possible that actual results could differ materially from our
current expectations. Please refer to the cautionary statements contained in our SEC filings for a more detailed explanation of the inherent limitations of such forward-looking statements. Well also discuss some non-GAAP financial measures
with respect to our performance. A discussion of our non-GAAP measures can be found in the Investor Relations section of our website, covidien.com.
Now, before getting into todays announcement, I want to make a brief comment on foreign exchange. I know a lot of you have been quite concerned
about the impact of the recent strengthening of the dollar versus several major currencies, and Id like to give you a brief update on where we stand.
Despite further appreciation against many currencies since our last update on April 21, we do not anticipate any significant change to earnings for
the second half of the fiscal year from the move in currencies since that date. The combination of our hedging program, interaction among the numerous different currencies we operate in and profitability in various geographies will mitigate our
total FX impact for total fiscal 2010, even at current exchange rates. Now currency will be more of a headwind for us in fiscal 2011, assuming rates remain unchanged, and well quantify that more accurately in our September Investor Day when we
initiate our fiscal 2011 guidance.
As for the specific impact of todays announcements on our 2010 expectations, Chuck will go into a
few more details in a few minutes. Following comments this morning from the management team well open up the lines for Q&A. We will conclude this call promptly at nine oclock a.m., so wed appreciate it if you would keep your
questions focused specifically on todays announcement. Weve prepared several slides around the ev3 business and the acquisition. These slides can be accessed at the Investor Relations section of our website, covidien.com, and well
be referring to them during our discussion.
Now Ill turn it over to Rich Meelia. For those of you following along with the slides, if
youd please turn to slide six. Rich.
Rich Meelia -
Covidien Plc - Chairman, President and CEO
Thanks, Cole. We are very excited about adding the ev3 business to Covidien. ev3 will accelerate our growth, improve our gross margins, deliver innovative
new products and give us a major market opportunity in the Vascular space. ev3 will complement our earlier acquisitions of Vnus and Bacchus. ev3 significantly expands our presence in the $3b Peripheral Vascular market and gives us a strong entry
point into the $1b Neurovascular market.
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Jun 01, 2010 / 12:00PM GMT, COV - Covidien Announces Definitive Agreement to Acquire ev3 Inc.
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Entry into these two markets brings significant scale to our growing Vascular platform and meets our
objective to enter the high-growth Neurovascular category. ev3 has a broad portfolio with more than 100 products, a robust pipeline of new offerings and the internal capabilities to continue to innovate and drive growth. ev3 has a world-class
selling organization and is building a solid base of clinical evidence to support its franchises. ev3s product line, combined with our existing Vascular presence, will make us a leader in the Vascular category.
We believe that Covidien is an excellent partner for ev3, as we can leverage our strong global footprint to accelerate ev3s geographic expansion.
In addition, our Physician Education and Training platform can be extended to ev3s products to further expand market penetration. ev3 shares our commitment to innovation and is aligned with our strategic focus to develop innovative products
that provide improved patient outcomes, supported by clinical evidence.
Some of you may be asking why now. As weve mentioned in the
past, acquisitions are opportunistic. When a pure-play Endovascular asset like ev3 becomes available, a company that fits our growth profile and our strategy of Vascular expansion, we owe it to our shareholders to investigate the opportunity.
While Chuck will go into more detail in a few minutes, we believe that the premium and multiples are in line with previous high-quality
Medical Device transactions. Following closing we will begin integration activities, but as there is virtually no product overlap we foresee a very straightforward integration plan. ev3 has a strong management team, which we hope to retain, and a
dedicated selling organization with broad product knowledge.
There will be some synergies to be achieved, but they are not the reason for the
deal. This is a unique opportunity to acquire a leader in the Endovascular market who will immediately expand our product offerings in the Peripheral Vascular and Neurovascular categories and will be accretive to our sales and earnings growth rates.
All in all, we are very optimistic about the future prospects for ev3 and Covidien. We expect it will accelerate our growth, improve our margins and deliver increased shareholder value.
In closing, ev3 is another example of our commitment to manage our portfolio for long-term shareholder value. Whether it be divesting a non-strategic
asset like Specialty Chemicals or a low-profit tangential business like our radio pharmacies, or even a small presence in a good market but difficult to compete in, like sleep, we will not be distracted by other things that do not add value. We will
shed those kinds of businesses and continue to work for value-adding investments, whether it be in R&D or external M&A.
I will now
pass the call over to Chuck Dockendorff who will discuss the financial aspects of the transaction.
Chuck Dockendorff -
Covidien Plc -
CFO
Thanks, Rich. If you turn to slide seven, Ill briefly discuss the key deal terms.
As noted in the release, the tender is an all-cash offer for $22.50 per ev3 share for a total value of $2.6b, net of cash acquired. The transaction will
initially be financed with available cash on hand, commercial paper and a $1.25b fully committed bridge facility. We expect that permanent financing will include bonds and commercial paper. The tender offer is expected to launch in the next 10 days
or so and we are currently planning to close the transaction by the end of July.
Turning to slide eight, we expect that the addition of ev3
will accelerate our revenue growth, increase our gross margins and deliver improved shareholder value over the long term. ev3 has a robust and attractive pipeline, combined with strong research and development and clinical capabilities, to enhance
our growth rate. It shares our commitment to innovation and launching new products and improved outcome for patients. Looking at the expected financial impact, the deal is accretive on a cash basis in the first full year after the close, excluding
one-time costs and deal-related amortization.
As we noted in the release, on a non-GAAP basis, excluding transaction restructuring and other
costs, we currently estimate that the acquisition will dilute 2010 earnings per share by $0.05 to $0.08. We expect, however, that a portion of this dilution will be offset by the underlying strength of our existing business. Looking to 2011, we
anticipate that the transaction will dilute our earnings by $0.10 to $0.15 per share, primarily due to higher depreciation, amortization, interest and income tax expenses. We expect the transaction will be accretive to EPS during fiscal 2012.
As I noted earlier, we remain committed to maintaining our strong investment grade ratings, and our strong balance sheet and cash flow give
us the flexibility to make additional investments if the right opportunity arises. We do not see that this deal in any way restricts our future
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Jun 01, 2010 / 12:00PM GMT, COV - Covidien Announces Definitive Agreement to Acquire ev3 Inc.
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investment plans. Our goal remains to manage our cash balance in the $1b to $2b range, and we continue to target to returning 25% to 40% of free cash flow to shareholders through dividends and
share repurchases.
Now Ill pass the call to Joe Almeida who will discuss the impact of the acquisition on the Medical Devices segment.
Joe Almeida -
Covidien Plc - President, Medical Devices
Thanks, Chuck. If you would turn to slide nine, please. About a year ago we reorganized the Medical Devices segment, creating the Vascular [Therapies]
business unit. This reorganization coincided with our acquisition of Vnus Medical Technologies, a developer of Medical Devices for minimally invasive treatment of venous reflux disease. At the time we noted that we were committed to further
enhancing our presence in the Vascular market and that expansion would likely be through acquisition.
We are extremely pleased to add ev3 to
our Vascular portfolio. The company has a strong position in the Peripheral Vascular market with a market-leading position in atherectomy. ev3 also has a strong and growing presence in the Neurovascular category. The acquisition establishes a
leadership position for us, delivering scale and scope, as well as product leadership in several percutaneous interventional applications. ev3 is an excellent fit for Covidien. The company shares our product leadership and innovation strategies, has
a burgeoning global infrastructure and will benefit from a number of our capabilities.
From a portfolio standpoint, ev3 has more than 100
products across its business. 15 of these products have been launched in the last 12 months as a result of the companys strong commitment to R&D. In addition, there are currently eight clinical trials in process which could lead to
additional innovative product offerings in the future. ev3 has over 200 sales representatives and its products are currently available in over 65 countries.
As you know, Covidien has a direct sales force of more than 4,000 in over 60 countries, and our products are available in more than 140 countries
worldwide. This product global footprint will be a significant benefit to accelerating geographic expansion for ev3s outstanding product portfolio. Both companies share a robust emerging market presence, a significant growth opportunity in key
area of focus for us over the next few years. Well look to accelerate ev3s fast-growing business outside the US as we expand geographically and benefit from Covidiens global footprint.
In addition, we expect to leverage our key Physician Training and Education expertise as we deliver innovative products to market and provide vascular
surgeons, neurosurgeons, interventional cardiologists and interventional radiologists with a broad portfolio of products to improve patient outcomes. As Rich noted, we are extremely excited to announce this acquisition today and believe it will be a
key driver of our future growth and innovation.
Next, Joe Woody, President of our Vascular Therapies business will discuss some more
specifics on the market opportunity, product platform and critical success factors.
Joe Woody -
Covidien Plc - President,
Vascular Therapies
Thanks, Joe. Im going to overview the market, the platform and the success factors, so, turning to
slide 10. The combination of the Peripheral Vascular and Neurovascular markets represents nearly $4.5b in global sales. While not shown in this chart, the business is geographically balanced with about 40% of sales outside the United States on a
combined basis. The Neurovascular portion of the business is nearly two-thirds outside the US.
Turning to the ev3 portfolio, we gain broad
offerings in all key segments of the market. In the Neurovascular space, as noted earlier, ev3 continues to innovate, launching new products at a rapid pace in emerging areas such as flow diversion and ischemic stroke. The portfolio breadth is a
competitive advantage as most direct competitors in Neurovascular have portfolio gaps compared with ev3.
Looking at the $3.1b Peripheral
Vascular market, we estimate that this market will grow 6% to 8% over the next five years. Growth will be paced by imaging enhancements and favorable demographic trends as the aging population will expand potential patient groups. Patient education
will also play a role as the treatment rate is still very low, at 25% or so in the US. We also believe that ev3s current and future product offerings will enhance awareness and that clinical evidence will provide additional growth
opportunities for us in this business.
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Jun 01, 2010 / 12:00PM GMT, COV - Covidien Announces Definitive Agreement to Acquire ev3 Inc.
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In the $1.3b Neurovascular market, shown at the bottom of the chart, youll note a much stronger
10% to 12% expected growth rate. ev3 is gaining share in this category by launching innovative new products combined with channel execution. The flow diversion and ischemic stroke treatment areas should be the fastest growing portions of this market
and ev3 is well positioned to benefit from this growth.
In both markets we believe ev3 brings sustainable long-term opportunities in
developed regions as well as advanced treatment opportunities in emerging markets such as Brazil, Russia, India and China. As Joe noted earlier, the ev3 product line will benefit significantly from Covidiens global footprint and emerging
market focus in the next few years.
Turning now to slide 12, ev3 has the broadest clinical portfolio in the industry and represents a unique
advantage for customers with a strong evidence program. The opportunity to acquire the strong Endovascular line-up is in one step was a key reason why we believe ev3 is such a unique opportunity for us and why we are so optimistic about its
prospects.
Upcoming launches in the PV market include plaque excision below the knee and a new version of the EverFlex stent. In the
Neurovascular market we expect the US launch of the pipeline flow diverter, an embolization device to treat large/giant complex aneurysms in 2011.
As noted on the chart, about 40% of ev3s business is currently outside the US. As with the Covidien base business, we expect that the outside
the US portion will grow faster than the US business as we expand geographically and take advantage of strong growth in emerging markets. Further, ev3 now invests about half of its R&D dollars in clinical studies to drive existing business
and deliver emerging market opportunities. Key areas of investment include carotid stenting, ischemic stroke and flow diversion.
Now turning
to slide 12, we see an excellent opportunity to combine ev3s strengths with Covidiens. In particular ev3 demonstrated expertise in the Endovascular market, a broad portfolio, an experienced sales force as key drivers for our Vascular
growth strategy. We look forward to leveraging R&D through incremental investments in large, fast-growing market segments to continue to deliver a steady stream of innovative new products.
Innovation is a growth component for both companies and our combined organizations should accelerate product launches and improve speed to market. For
Covidien our world-class PACE program, or Professional Affairs and Clinical Education, has been a very successful training tool in our Surgical business for more than 40 years.
Weve trained about 275,000 surgeons and spent tens of thousands of hours annually training healthcare professionals on our new product offerings,
new treatments and accelerating new clinical protocols. Training includes hands-on opportunities with our products, seminars at key trade shows, conventions and professional societies, as well as fellowship programs and postgraduate courses.
We look to quickly bring the ev3 business into this training regimen as we believe it will be an effective tool in the interventional spaces
in Peripheral Vascular and Neurovascular. While specific training modules are still to be developed, we expect that focus areas will include ischemic stroke and flow diversion.
Coupling ev3s broad portfolio with our current product line-up and PACE capabilities will differentiate us and be a unique competitive advantage we
can offer to customers. The ev3 product line will also benefit from Covidiens broad global reach and direct presence. We look to leverage our sales force and its strong relationships with hospitals and other healthcare providers.
As you heard this morning, this acquisition creates many exciting opportunities for Covidien. Its on strategy, its significantly broadens our
Vascular portfolio and it creates channel opportunities that deliver scale and scope, giving us a product leadership position in percutaneous intervention applications. Once the acquisition closes Im looking forward to working closely with the
ev3 team to expand its leading Endovascular platform, deliver innovative new products to the marketplace and increase shareholder value for Covidien.
Now Ill turn the call over to Cole for Q&A.
QUESTION AND ANSWER
Cole Lannum -
Covidien Plc - VP,
IR
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Jun 01, 2010 / 12:00PM GMT, COV - Covidien Announces Definitive Agreement to Acquire ev3 Inc.
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Great, thanks, Joe. For Q&A were going to limit you, please, to one question and a follow up
as needed so we can give everyone a chance to get their questions in. If you have any additional questions wed appreciate it if you put yourself back in the queue or contact us after the call. Again, wed ask you please confine your
questions to those related to the transactions we announced today. Eric, can you please review once again the process for signaling a question?
Operator
Thank you. (Operator Instructions). Your first question comes from the line of Matthew Dodds with Citigroup. Please proceed.
Matthew Dodds
- Citigroup - Analyst
Morning.
Cole Lannum
- Covidien
Plc - VP, IR
Morning, Matt.
Matthew Dodds
-
Citigroup - Analyst
When you look at the call points, Rich, youve got for this business interventional radiology, interventional
cardiology, vascular surgeons. For your Vascular business today, because it is bigger than ev3, what is the primary call point today for that business? And how long do you expect to keep these businesses separate at a minimum?
Rich Meelia
- Covidien Plc - Chairman, President and CEO
Im going to let Joe Woody take that, Matt.
Joe Woody
- Covidien Plc
- President, Vascular Therapies
Thanks, Matthew, this is Joe Woody. Well certainly call on those customers, but in the venous
segment, where ev3 is focused on peripheral arterial diseases and neurovascular. And in the near term were going to keep our sales organizations focused on what theyre doing best. And later on, three to five years out, well look at
opportunities where there could be cross-selling.
Matthew Dodds
- Citigroup - Analyst
Okay. And then just one quick one. Is there a break-up fee? You can disclose that?
Cole Lannum
- Covidien Plc - VP, IR
That information will come out whenever we file the tender offer, Matt. I think you can assume appropriately the kind of deal thats typically done
on these kinds of transactions.
Matthew Dodds
- Citigroup - Analyst
Thanks, Cole. Thanks, Joe.
Operator
Your next question comes from the line of Adam Feinstein with Barclays Capital. Please proceed.
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Jun 01, 2010 / 12:00PM GMT, COV - Covidien Announces Definitive Agreement to Acquire ev3 Inc.
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Adam Feinstein
- Barclays Capital - Analyst
Yes, thank you. Good morning, everyone. Maybe if you could just walk us through a bridge, if you will. Youre saying $0.05 to $0.08, but its
only a two month impact, but $0.10 to $0.11 on a fully annualized basis in the next fiscal year, so just trying to understand the synergies and such. So maybe if you could just help us bridge the numbers?
Chuck Dockendorff
- Covidien Plc - CFO
Yes, the $0.05 to $0.08 for this year, we will own it for only two months, so the biggest and next year we mentioned $0.10 to $0.15 of dilution for
this deal. So a lot of that dilution is coming from as you know, a big piece of the purchase price will be allocated to intangibles so the amortization on the transaction increases significantly. And thats probably the bigger driver of
the dilution within the first year. And, as weve mentioned, it will be cash accretive in that first full year of ownership so thats an important concept to remember in that piece of it.
The other piece is we will be executing upon some of the synergies, although these are not the big value drivers within the deal, as Rich has mentioned.
In addition, it will take us some time to get some of the tax synergies related to the business and well be working on that through to 2011. And thats where it turns into accretive in 2012, as we realize some of that, along with the
growth of the products we expect within the marketplace.
Adam Feinstein
- Barclays Capital - Analyst
Okay, thank you very much. Ill get back in the queue.
Cole Lannum
- Covidien
Plc - VP, IR
Next question, please.
Operator
Your next question comes from the line of Bob Hopkins with Bank of America. Please proceed.
Bob Hopkins
- Bank of America - Merrill Lynch - Analyst
Sure, thank you. Can you hear me okay?
Cole Lannum
- Covidien
Plc - VP, IR
Absolutely, Bob, good morning.
Bob Hopkins
- Bank of
America - Merrill Lynch - Analyst
Good morning. So two questions. First, Chuck, could you you gave a little guidance in terms
of accretion dilution out through 2012. Can you just give us a rough sense as to what you think the operating margin could be for this organization as its integrated into Covidien as you look out a couple of years? What do you think is
possible from what you see right now?
Chuck Dockendorff
- Covidien Plc - CFO
As far as operating margin within the deal, I think it will be clearly up in line with the Medical Device and what we have out there in that business and
for Covidien overall. The only thing on this, Bob, is it will take a longer term than we have had in our past deals because of this
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Jun 01, 2010 / 12:00PM GMT, COV - Covidien Announces Definitive Agreement to Acquire ev3 Inc.
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amortization that [will] be hitting off in the beginning year. So as that becomes a smaller piece of the overall business the profitability and the operating margins will improve.
Bob Hopkins
- Bank of America - Merrill Lynch - Analyst
Okay. So youre comfortable it can be in the high 20s to 30% operating margin over time?
Chuck Dockendorff
- Covidien Plc - CFO
Yes, that would be reasonable over the longer term.
Bob Hopkins
- Bank of
America - Merrill Lynch - Analyst
Okay. And then the second question from me is, Chuck, just can you give me a sense in terms of how
comfortable you are in closing this deal on time and at the price that you cited today? And the reason I ask is that these are obviously attractive markets. And so I was wondering if you could just give us a little sense as to was this an auction
process, how long have you guys been talking. Just to give us a little bit of the background of the deal would be helpful.
Chuck Dockendorff
-
Covidien Plc - CFO
Yes, weve been working on this for a couple of months and weve been watching ev3 for really the past
year and a half, two years. Its an area weve always been interested in and have had some discussions with management along that way. It was a competitive process and we bid on this company. The prospects for closing the transaction I
would say are very good. We dont have a lot of overlapping products and we do have to file for regulatory approval, both in the US and in Europe, but we expect that to go relatively smoothly.
Bob Hopkins
- Bank of America - Merrill Lynch - Analyst
So it was a competitive process, you said?
Chuck Dockendorff
-
Covidien Plc - CFO
Yes.
Bob Hopkins
- Bank of
America - Merrill Lynch - Analyst
Okay, thanks.
Rich Meelia
- Covidien
Plc - Chairman, President and CEO
Like Chuck said, Bob, were very confident that this will close according to our schedule.
Bob Hopkins
- Bank of America - Merrill Lynch - Analyst
Great, thank you very much.
Operator
Your next question comes from the line of David Lewis with Morgan Stanley. Please proceed.
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Jun 01, 2010 / 12:00PM GMT, COV - Covidien Announces Definitive Agreement to Acquire ev3 Inc.
|
David Lewis
- Morgan Stanley - Analyst
Good morning, can you hear me?
Cole Lannum
- Covidien
Plc - VP, IR
Yes, David. You might want to speak up just a little bit, but go right ahead.
David Lewis
- Morgan Stanley - Analyst
Okay, Ill try. So a couple of questions here. Chuck, just thinking about the expectations for fiscal 11, Im struck by the fact that we
see $0.10 to $0.15 dilution in 11, but then accretive in 12. Maybe you can help us understand that. Is that maybe significant expectations for future pipeline products for ev3, specifically carotid or pipeline?
Chuck Dockendorff
- Covidien Plc - CFO
It does have sales growth in there that will help that going forward. I think if you look at the consensus of ev3 theyre up in the double-digit
growth expectations for the next couple of years. So there is some sales growth at relatively higher margins that is contributing to that accretion going forward. As I mentioned before, theres also some tax synergies that we think that
well be able to layer in that will take time over 2011, as well as some of the synergies that we will incorporate into the model or into the business that will also be processed during 2011.
So all of those things are contributing towards bringing it to positive accretion within 2012, our fiscal 2012, which is really the first year
full year weve owned it after having it for a full year. It will be basically 14 months if we close at the end of July.
Rich Meelia
- Covidien
Plc - Chairman, President and CEO
And we feel very comfortable with our internal projections, if you were to compare them to ev3
consensus projections. So were not asking for anything Herculean here.
David Lewis
- Morgan
Stanley - Analyst
Okay, very helpful. And one related question. If you think about next years number, street consensus
expectations on the earnings line have significant deceleration from perhaps 18% to 20% growth, down to something like 10% to 11% growth. As you think about the $0.10 to $0.15 of dilution, is that an internal Covidien estimate, or should we be
thinking about $0.10 to $0.15 versus consensus expectation? Thank you.
Cole Lannum
- Covidien
Plc - VP, IR
The way you should think about that number is the deal itself, for this acquisition on its own, will be dilutive by $0.10
to $0.15. That is not either an implicit or explicit commentary on where consensus may be. And, let me reiterate, we will not be giving any type of 2011 general commentary until our September Analysts Day.
David Lewis
- Morgan Stanley - Analyst
Great, thank you very much.
Operator
Your next question comes from the line of David Roman with Goldman Sachs. Please proceed.
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Jun 01, 2010 / 12:00PM GMT, COV - Covidien Announces Definitive Agreement to Acquire ev3 Inc.
|
David Roman
- Goldman Sachs - Analyst
Good morning, everybody. Thanks for taking the questions. In the introductory comments, Rich, you mentioned a little bit about synergies, that that
wasnt a key driver of the transaction, and also in response to Matts question on sales synergies going out five years, that we wouldnt see that until then. Can we maybe talk about top and bottom line synergies assumed in the
transaction and how we should think about those from a modeling standpoint?
Rich Meelia
- Covidien
Plc - Chairman, President and CEO
Well, I think well be sharing with you some specifics about anticipated synergies. I
dont believe thats been disclosed at this point in time, but its not a large number, David.
This deal was done because,
one, strategically we had identified Vascular as an attractive space where we saw good growth and an ability to effectively compete with the right asset as part of our portfolio, and thats what drove this decision. And were just going
into this from a sales standpoint with a conviction to focus on continued growth, as opposed to leveraging sales people. That can come as things progress. But at this point in time we see them these businesses as both capable of delivering
good solid growth, and thats the way to drive long-term earnings, as opposed to try and take cost out of it.
David Roman
- Goldman
Sachs - Analyst
So is it safe to assume that implied in the $0.10 to $0.15 dilution in 2011 and the accretion in 2012 will be modest
cost synergies, as well as a modest benefit to none to all from cross-selling opportunities?
Chuck Dockendorff
-
Covidien Plc - CFO
I would say that, as you move in, there are some synergies. And we havent quantified the amount, but
primarily around the public company expenses that you would normally expect to be taken out of the company like that, as well some of the back-office systems. And that really is around the world that we can leverage some of those things and get
savings there, as well as utilizing our tax structure and getting some synergies from that process. And that will all be incorporated through that year. So thats a big piece of it. I think Joe Woody mentioned previously that the cross-selling
probably is not a big component of that within the next year or two.
David Roman
- Goldman
Sachs - Analyst
Okay. And then, just to be clear, on the 2012 accretion youre saying its accretive for the full year or it
becomes accretive during 2012?
Chuck Dockendorff
- Covidien Plc - CFO
Accretive for the full year.
David Roman
- Goldman
Sachs - Analyst
Okay, thank you.
Operator
Next question comes from the line of Michael Weinstein with JP Morgan. Please proceed.
Michael Weinstein
- JP Morgan - Analyst
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Jun 01, 2010 / 12:00PM GMT, COV - Covidien Announces Definitive Agreement to Acquire ev3 Inc.
|
Thank you. Congratulations this morning. Let me ask, part of the value creation story for ev3 is the
companys differentiated portfolio in Neurovascular. They are making a lot of progress in the area of flow direction. Can you talk about your visibility on the PUFS trial, I assume you have seen that data, and your confidence in the 2011 US
approval?
Joe Woody
- Covidien Plc - President, Vascular Therapies
This is Joe Woody. Im probably the most closely related to that. I think I would just point you to Bob Palmisanos comments about selling to
the US in 2011 and they feel like theyre on track, but were not deeply engaged yet in their clinical studies.
Michael Weinstein
- JP
Morgan - Analyst
Okay. You have seen that data. I would assume that, right?
Joe Woody
- Covidien Plc - President, Vascular Therapies
No.
Michael Weinstein
- JP
Morgan - Analyst
So you have not seen the PUFS trial data, okay. But your expectation is that the approval would be out? You would
have the approval in the US in 2011?
Rich Meelia
- Covidien Plc - Chairman, President and CEO
Id refer to their statements about that, Mike.
Michael Weinstein
- JP
Morgan - Analyst
Okay, and then just last item. And it sounds like you may not have the visibility on this, but the COCOA trial, do
you have any expectations for enrolment timing and when you might have that, what should be the label expansion ultimately for pipeline?
Joe Woody
- Covidien Plc
- President, Vascular Therapies
Again, weve not worked yet in the pre-closing stage with them on the depth of their trials.
Michael Weinstein
- JP Morgan - Analyst
Okay, all right.
Cole Lannum
- Covidien
Plc - VP, IR
(Multiple speakers), Mike. At this point definitely you should refer back to their management and what theyve said.
Were not going to comment until a later date as to our feelings on those.
Rich Meelia
- Covidien
Plc - Chairman, President and CEO
One thing I think you also we need to remember it was a competitive process, so they were
very careful about what kind of data was available in this process. And, actually, as we move closer to the closing of this deal well learn obviously more about some of these things.
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Jun 01, 2010 / 12:00PM GMT, COV - Covidien Announces Definitive Agreement to Acquire ev3 Inc.
|
Michael Weinstein
- JP Morgan - Analyst
Okay, I appreciate it. Thank you, guys.
Rich Meelia
- Covidien
Plc - Chairman, President and CEO
Okay, Mike.
Operator
Your next question comes from the line of Tao Levy with Deutsche Bank. Please proceed.
Tao Levy
- Deutsche Bank - Analyst
Good morning, two quick questions. First, how much of the acquisition was driven by growth in ev3s current products and what you see visibly on the
market right now, versus what might be coming out in the pipeline? And how much of the pipeline needs to occur for you to get to your accretion in 2012?
Joe Woody
- Covidien Plc
- President, Vascular Therapies
Tao, this is Joe Woody. For us its a global platform, an opportunity to get a wide, broad
portfolio in Neurovascular and Peripheral Vascular and, essentially, it maps with our stated strategy of product leadership and innovation. So it was more of a growth innovation perspective strategically at the GBU level. Ill ask Joe
Almeida can maybe make a comment or two on that.
Joe Almeida
- Covidien Plc - President, Medical Devices
Long since weve developed the strategy for Vascular we looked at all the potential products and channels, and this is just a normal evolution for
us. We have created this opportunity through our very strong portfolio management process that we had internally at Covidien. So I would say that the pipeline that ev3 brings to Covidien is phenomenal and matches exactly to our strategic intent with
the Vascular Therapy business. And within the GBU Im sorry, within the segment, the very strong innovation culture of ev3 will be well received at Covidien.
Rich Meelia
- Covidien Plc - Chairman, President and CEO
I would just add one thing, Tao, that our internal models that drove our thinking has pipeline effect only in the first couple of years of the model. And
then, as we move further out, its more market-based growth. So we dont feel like were hanging out there depending upon high risk development projects coming through.
Tao Levy
- Deutsche Bank - Analyst
Okay. And on the debt side, how much do you expect to bring on to the balance sheet at close in terms of new debt? Thanks.
Chuck Dockendorff - Covidien Plc - CFO
Well, were going to fund this with a portion of cash and, like we said, commercial paper and initially potentially a bridge, but we expect to term
that out. We will be paying that down over the next year, a big piece of that, so, again, were not committing to any specific amount at this point. Well be in the capital markets this month and looking to term some of that prior to the
close, in fact.
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Jun 01, 2010 / 12:00PM GMT, COV - Covidien Announces Definitive Agreement to Acquire ev3 Inc.
|
So, again, were going to maintain that strong investment grade rating and well be using some
of our internal cash flow to pay down that debt over the next year. And I would mention that that also adds to some of the accretion into 2012 that we see, as well as those other synergies that I talked about.
Tao Levy
- Deutsche Bank - Analyst
Okay, thanks.
Cole Lannum
- Covidien
Plc - VP, IR
Thanks, Tao. Next question, please.
Operator
Your next question comes from the line of Rick Wise with Leerink Swann. Please proceed.
Rick Wise
- Leerink Swann - Analyst
Good morning, everybody. Maybe back to the big picture for a second, Rich. You mentioned the why now and you tried to answer it, but maybe you
could give us a little perspective. I know you were part of the team that tried to acquire [Bard] a decade ago. Im wondering is this a strategic process thats been on your mind and the direction youve been heading for a long time
and, so, this is not just an opportunistic moment. And maybe, extending on that, where do we go from here? Do you need to build out on the Pharma side? Are there other key products? Just help us think through the future as well a little bit.
Rich Meelia
- Covidien Plc - Chairman, President and CEO
Sure. When we decided to establish a Vascular GBU about a little more than a year ago, it was absolutely designed to serve as a building block for
doing additional deals. So we had the Compression and the Dialysis Catheter business and our plan was to move into areas that made sense where, one, there was good technology and, two, we could effectively compete. So Vnus and Bacchus followed
shortly thereafter.
And we had always looked at Peripheral and Neurovascular businesses, but just the right timing was never there and, so,
we were not going to try and force something, Rick. But the opportunity arose and we have since responded. So we feel [right now] weve established another platform here to which we can find additional bolt-ons like weve done in Surgery
and Respiratory of late.
So we think its the same strategy going forward. Weve preferred all the bolt-ons because theyre
less risky, easier to manage, but when the right strategic larger deal comes along weve said all along we dont preclude them; its just not what we prefer. Growth is growth and strategies need to be committed to, and this was a
strategy we committed to.
We will continue to look at some of deals in other areas that have the right kind of returns in order for us
to add the value that we think we can add, through what we believe is a very buttoned down and very focused and very disciplined M&A process at Covidien. So it will continue be an opportunity. And Pharma is right up there with other
opportunities, although historically with them its been primarily through a licensing approach as opposed to an all-out acquisition.
Rick Wise
- Leerink
Swann - Analyst
Okay. A quick follow up, if I could, separately, and maybe its for Chuck or Cole. Help us think through the
commentary about the 2010 dilution for ev3, for the $0.05 to $0.08, a portion of that offset by the strong underlying business trends. Should we think about that commentary, that currency how does currency fit into that commentary? Or is it
saying that the offset is occurring despite whatever currency pressures are happening? Thank you.
Chuck Dockendorff
-
Covidien Plc - CFO
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Jun 01, 2010 / 12:00PM GMT, COV - Covidien Announces Definitive Agreement to Acquire ev3 Inc.
|
Well, I think that Cole mentioned in the beginning of the call theres some concerns out there, and
its been written about the Company and the impact of FX on the results for this year. And we wanted to make sure that everybody understands, while, certainly, the FX has, as remarked upon, has deteriorated over time, because of the timing of
it occurring in the year and the multitude of currencies in our hedging program it is not going to impact us that much for the balance of this year. And so, as such, and the other parts of the business are doing well, we think that we will have
slight dilution from this deal but were not going to well be able to offset some of that with the other strengths of the business.
Part of that goes back, Rick, I think, when we changed our currency back in 2008 and we had a tremendous shift there, we had a pretty big impact on that.
But here youre sitting half way through the year. And we have hedges that go out through to next year and were realizing the benefit of those hedges in the current year as that currency changes, which is offsetting some of the
partial-year impact on FX. So it has to do with the timing of when these things occurred, as well as they amount and what currencies around the world impacted.
Rick Wise -
Leerink Swann
-
Analyst
Thank you so much.
Cole Lannum -
Covidien Plc
-
VP, IR
Rick, can I just add just one other thing on there? Outside of currency we also want to send a clear
message, and this is very consistent with what we said on April 21 on our second-quarter call. If we acknowledge and understand that in our second quarter we had revenue growth that was lower than expectations, I think unfortunately there
continues to be a great deal of concern out there that were looking at the a second half of the year of continued very, very weak revenue growth.
As we noted on April 21, the guidance that we gave for the full business in revenues, as well as the guidance for the individual segments, was very
consistent with a bounce back in the second half of the year, and yet there continues to be a lot of chatter and concern out there that the second quarter has begun some sort of new phase where were not growing any of our businesses any more.
So part of this is for us to just say to you were not going to go into any more detail on this, but were reiterating again what
we said on April 21; we do not expect the kind of significant revenue weakness that we saw in the second quarter for the second half of the year. There were some pretty unique things going on there.
Rick Wise -
Leerink Swann
-
Analyst
Thanks so much.
Operator
The next question comes from the line of Joanne Wuensch with BMO. Please proceed.
Joanne Wuensch -
BMO
-
Analyst
Thank you for taking my question. Two parts, first, you keep talking about Vascular, Vascular, Im going to assume that includes Peripheral and
Neurovascular. The Neurovascular business at ev3 was probably its gem, in my opinion at least. Can you give some comment on how much that may have weighed in versus the Peripheral part?
Joe Woody -
Covidien Plc
-
President, Vascular Therapies
This is Joe Woody. I think it was very attractive for us because of their developments in the ischemic stroke marketplace, certainly flow diversion, the
new launch of the Axiom coils and the fact that theyre taking share at a very rapid rate. Its a very strong business with lots of momentum.
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Jun 01, 2010 / 12:00PM GMT, COV - Covidien Announces Definitive Agreement to Acquire ev3 Inc.
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Joanne Wuensch -
BMO
-
Analyst
And then the second part of this is that you talked about keeping people. Im going to assume that means keeping senior management and the sales
force in place. Are they make-hole provisions or some type of provision to keep any key participants? Thank you.
Joe Woody -
Covidien Plc
-
President, Vascular Therapies
Well, I think just, as Rich outlined, were very impressed by the ev3 team and
what theyve been able to execute and deliver so were anxious to keep as many people as possible. Ill leave it at that for now, unless either Rich or Cole ?
Rich Meelia -
Covidien Plc
-
Chairman, President and CEO
Yes, just, the sales people will not be touched and the senior operating team, for sure, we absolutely want to keep. This is a platform deal for us, so to
speak, and wed like to look to this management team to build the business like we had our Surgical Team, our Respiratory Team, our Energy Team build their businesses. So thats probably the best way to think about.
Joanne Wuensch -
BMO
-
Analyst
Thank you.
Operator
The next question comes from the line of Josh Jennings with Jefferies & Company. Please proceed.
Joshua Jennings -
Jefferies & Co
-
Analyst
Good morning, gentlemen, thanks for taking the questions. Just, first, if you just comment on how you foresee the integration process going forward in
terms of duration and when you feel it could be fully integrated. And Ill just start with that.
Joe Almeida -
Covidien Plc
-
President, Medical Devices
Josh, the integration process will proceed once the deal is closed. We are not ready to
disclose any details of the integration. We believe that, like Joe Woody just mentioned and Rich actually underscored, that were very impressed with the team there. So our ability now is to our integration is more focused how to keep
them engaged, how to continue to deliver on the good results that the company has delivered in the past. So I think at this point this would be our take.
Joshua Jennings -
Jefferies &
Co
-
Analyst
And then, just in terms of integration, are you going to be focused on integrating ev3
through the process of vetting the transaction, obviously, probably evaluate other assets? How should we think about the development of your Vascular business going forward? Are you pretty content with the product portfolio, like you said, or are
you looking at other further bolt-ons going forward over the next year to two to complement this transaction and building out of the Vascular business? Thanks a lot.
Joe Woody -
Covidien Plc
-
President, Vascular Therapies
Josh, this is Joe Woody. Thanks. One of the most exciting things about this for our
business is the platform itself and, certainly, there are opportunities, whether they be licensing opportunities or bolt-ons or own development to create leverage in the outer years, so thats absolutely part of our strategy.
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Jun 01, 2010 / 12:00PM GMT, COV - Covidien Announces Definitive Agreement to Acquire ev3 Inc.
|
Cole Lannum -
Covidien Plc
-
VP, IR
Thanks, Josh. Next question, please.
Operator
Your next question comes from the line of Michael Matson with Wells Fargo Securities. Please proceed.
Michael Matson -
Wells Fargo Securities
-
Analyst
Thanks. I know its early days here, but I was wondering, just for modeling purposes, if you could give us any sense of what portion of the purchase
price will end up allocated to intangible assets. I know with other deals Ive seen in MedTech it seems like its typically in the 40% range, which would be about $1b in this case. Is that a reasonable estimate? And then what is the
timeframe that that would be amortized over?
Rich Meelia -
Covidien Plc
-
Chairman, President and CEO
Probably in our model we have it a little higher than that, and we have to go through and refine all of that and make our final judgments with valuation
experts and things like that, but weve modeled a little bit higher than that in our model. And typically the amortization period is allocated to a number of different assets for different lines but, generally, over the 12 to 15-year timeframe
for the overall amortization [of that intangible].
Michael Matson -
Wells Fargo Securities
-
Analyst
Okay. And then my second question is just around the integration. And I realize that, again, its early days, but is the plan to keep the ev3
headquarters in Minnesota? And would there be any movement of any of your other Vascular products into the business, or is it going to pretty much remain a standalone entity with its own sales force and own management and so forth?
Rich Meelia -
Covidien Plc
-
Chairman, President and CEO
The plan is to keep the facility operating in Minnesota; we have no plans to move that. I would imagine over time, as we look to buy other or are
interested in other opportunities you could see things folded into that business. But theres absolutely no plan whatsoever to move anything out of Minnesota.
Michael Matson -
Wells Fargo
Securities
-
Analyst
All right, thanks.
Cole Lannum -
Covidien Plc
-
VP, IR
Thanks, Mike. Next question, please.
Operator
Your next question comes from the line of Kristen Stewart with Credit Suisse. Please proceed.
Kristen Stewart -
Credit Suisse
-
Analyst
Thanks for taking the question. I guess to Coles earlier comment with respect to slowing growth, can you just comment maybe on where some of the
areas where you do expect the strength of the underlying business to help offset this current years dilution associated with this deal? Are
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Jun 01, 2010 / 12:00PM GMT, COV - Covidien Announces Definitive Agreement to Acquire ev3 Inc.
|
we seeing it kind of a rebound within Devices? Is it just better operating performance within Imaging? Can you just help us understand how youre doing that?
Cole Lannum -
Covidien Plc
-
VP, IR
Kristen, at this point, mid quarter, we wanted to give you a little bit of a snapshot of things, given that fact that we were having the call already, but
we prefer not to say anything beyond what weve already stated as far as details go.
Kristen Stewart -
Credit
Suisse
-
Analyst
Okay, so no clarity on what specifically is giving increased confidence to offset
dilution?
Cole Lannum -
Covidien Plc
-
VP, IR
I would just refer you back to the comments we made on April 21 and the guidance we gave at that time, which I believe is consistent with a rebound
in growth rates across the businesses in the second half of the year.
Kristen Stewart -
Credit
Suisse
-
Analyst
Okay. And then maybe, Chuck, just in terms of the deal dynamics, in terms of
accretion/dilution, can you maybe help us just understand how maybe some of the changes in accounting relative to where if this deal had closed two years ago what the incremental like if you had in-process R&Dd a write-off,
maybe what the incremental amortization per year would be?
Chuck Dockendorff -
Covidien Plc
-
CFO
I havent calculated FPs related to in process R&D, but it would certainly have a significant impact because we would be under the old
accounting methods we would have valued the in-process research and development and would have written that off. And now that, as you know, is getting capitalized and will be amortized as the new projects are launched, or either written-off as
programs are stopped and so on.
I [didnt concur] it with the old accounting. Were just living with the new accounting and we
assess the deal based on that. But I think the most important thing to think about is the amortization in these deals certainly is a significant component of it, and that gives some of the reasons why we give ranges within the EPS dilution
guidelines.
But to go back to the valuations of these businesses, it really is critical to make sure you look at the cash-on-cash returns,
the internal rate of return, and we have a very disciplined strategy around looking at that. And so the amortization, while it does impact earnings per share, does not impact those specific returns that you look and value the transactions on, and
thats the most critical component of it.
Kristen Stewart -
Credit Suisse
-
Analyst
Will you guys be breaking out amortization on a go-forward basis with the regular quarterly earnings reports, or will we have to the wait for the Qs to
get all those details?
Cole Lannum -
Covidien Plc
-
VP, IR
At this point we dont plan on changing any of the reporting that weve done historically, Kristen.
Kristen Stewart -
Credit Suisse
-
Analyst
All right thanks.
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Jun 01, 2010 / 12:00PM GMT, COV - Covidien Announces Definitive Agreement to Acquire ev3 Inc.
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Operator
The next question comes from
the line Glenn Novarro with RBC Capital Markets. Please proceed.
Glenn Novarro -
RBC Capital Markets
-
Analyst
Thank you for taking my questions. Just another quick question on modeling. One of the levers in the model over the next couple of years is a continued
lowering of the tax rate, but it sounds to me like the tax rate for fiscal 11 will be above fiscal 2010. Is that correct, or is it the tax rate comes down in 2011 but a little bit less so that what weve seen in previous years? Thanks.
Chuck Dockendorff -
Covidien Plc
-
CFO
Weve got a lot of moving pieces here between some of the divestments were doing and Baker and also this acquisition, and we have made
estimates on these things. We really do not want to give guidance on our 2011 tax rate at this time. I would tell you, though, that we continue to see opportunities for reduction and we continue to see planning opportunities within that realm and
therell be further planning opportunities within ev3 itself. So beyond those comments I really wouldnt want to comment on the tax rate going forward.
Cole Lannum -
Covidien Plc
-
VP, IR
The one thing I would say, Glenn, and I think we said this in the presentation, everything else being equal
this transaction does put upward pressure on the tax rate, but how much that is, where is the magnitude, where its all going to all fall out, we dont want to comment on.
Glenn Novarro -
RBC Capital Markets
-
Analyst
And then it reverses in 2012 where the tax rate should move lower. Is that correct?
Chuck Dockendorff -
Covidien Plc
-
CFO
Some of the synergies are in our modeling to reduce the tax rate lower in those years. Yes, thats true.
Glenn Novarro - RBC Capital Markets - Analyst
Okay, thank you.
Cole Lannum -
Covidien Plc
-
VP, IR
Next question, please.
Operator
Your next question comes from the line of ThomasKouchoukos with Stifel Nicolaus. Please proceed.
Cole Lannum -
Covidien Plc
-
VP, IR
Morning, Tom.
Thomas Kouchoukos -
Stifel
Nicolaus
-
Analyst
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F
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Jun 01, 2010 / 12:00PM GMT, COV - Covidien Announces Definitive Agreement to Acquire ev3 Inc.
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Morning, guys. Just on the OUS, I know you said there were a whole lot of synergies, but looking at the
Vnus deal Vnus has no OUS presence, ev3 obviously is very good outside the United States. Is there anything that you think in terms of emerging markets, I know theyre strong in some of the emerging markets, that could either benefit the
existing Covidien products or where you see synergies in markets that are relatively untapped at this point?
Joe Woody -
Covidien Plc
-
President, Vascular Therapies
So, Tom, this is Joe Woody. In terms of our global infrastructure we definitely think
that that brings a lot to the table in terms of back-office infrastructure, but in some cases thats around regulatory and reimbursement, health economics. And we talked about the PACE program, especially where you have these new emerging areas
where were going to be looking to things like carotid stenting and [drug moving] balloons [mid] stroke, flow diversion. In general, and Ill have Joe Almeida maybe talk about this, we also have investment into Asia that I think will also
enhance this acquisition. So, Joe?
Joe Almeida -
Covidien Plc
-
President, Medical Devices
Yes. We see the ability of our back office in the emerging markets to support our accelerated probably a go-directly strategy in those regions of the
world that ev3 may have a more cautious plan. So I think we are investing in the emerging markets, primarily in Asia, and were probably going to see some of the benefits of that investment with ev3.
Thomas Kouchoukos -
Stifel Nicolaus
-
Analyst
Okay, great. Thank you, guys.
Cole Lannum -
Covidien Plc
-
VP, IR
Operator, were getting close to the top of the hour and we have time for maybe one or two more
questions before we draw to an end.
Operator
Thank you. The next question
comes from the line of Sachin Shah with Capstone Global Markets. Please proceed.
Sachin Shah -
Capstone Global
Markets
-
Analyst
Hi, good morning. I just want to follow up as far as the background on the merger. You
said its a competitive process, so is it fair to say that there were other bidders in the process and you basically won out? Thats the first part.
The second part of the question is did you mention that you do need EC approval aside from HSR?
Cole Lannum -
Covidien Plc
-
VP, IR
Sure. So, in addition to what weve said so far were not going to make any other comment on the process, so youll have to wait until the
tender offer has been filed. And, yes, there is European approval thats required.
Sachin Shah -
Capstone Global
Markets
-
Analyst
Okay. And youre going to file both of them pretty much simultaneously in the next
few days?
Cole Lannum -
Covidien Plc
-
VP, IR
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F
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Jun 01, 2010 / 12:00PM GMT, COV - Covidien Announces Definitive Agreement to Acquire ev3 Inc.
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The filing for approval will be filed over the next week or two.
Sachin Shah -
Capstone Global Markets
-
Analyst
Okay, great. Thank you. Have a great day.
Operator
Your next question comes from the line of [Charles Hath] with [Dotree and Company]. Please proceed.
Charles Hath -
Dotree & Co
. -
Analyst
Hi, thanks for taking my question. I had a question regarding how youre valuing ev3s Neurovascular business. It represents about 40% of total
revenues at ev3. And I think you mentioned earlier in the prepared remarks that you were forecasting 10% to 12% market growth for Neurovascular. And when you look historically, 2008/2009, ev3 did 27% and 28% growth; they did 44% last quarter. And
their public comments have said that they think the market is growing north of 15%, so Im just wondering why your assumption is 10% to 12%, given all this data.
Rich Meelia -
Covidien Plc
-
Chairman, President and CEO
What weve done is there are a lot of emerging areas, as youre well aware,
in Neurovascular and they primarily are ischemic stroke and flow diversion. So as these technologies are adopted over time and protocols are changed and the studies come out, we were conservative with our approach to just how fast that might come to
fruition.
Cole Lannum -
Covidien Plc
-
VP, IR
I might also add, you see this from time to time, there can sometime part of this can come from different time periods that youre looking at
as well as definitions of the market. In no way are we trying to say that ev3s estimates are in any way inaccurate. This is just our slice of looking at things.
Charles Hath -
Dotree &
Co
. -
Analyst
And your assumption assumes that there is a US approval for their pipeline product?
Rich Meelia -
Covidien Plc
-
Chairman, President and CEO
Yes, in the outer years.
Charles Hath -
Dotree &
Co
. -
Analyst
Okay.
Rich Meelia -
Covidien Plc
-
Chairman, President and CEO
The thing I would add too is that they have launches that are ongoing and then you also
have competitive responses over time too which we factor in.
Charles Hath -
Dotree & Co
. -
Analyst
Okay. Thank you.
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F
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RANSCRIPT
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Jun 01, 2010 / 12:00PM GMT, COV - Covidien Announces Definitive Agreement to Acquire ev3 Inc.
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Cole Lannum -
Covidien Plc
-
VP, IR
Operator, we have time for one more question and then we need to wrap up.
Operator
The final question comes from
the line of Drew Figdor with [Tightman]. Please proceed. Mr. Vigdor, your line is open.
Cole Lannum -
Covidien Plc
-
VP, IR
Assuming that he or she has dropped off the line, why dont we go ahead and wrap up.
Starting at nine oclock Eastern Time tomorrow, a replay of the call will be available. Additionally, the replay will be available on our corporate
website, covidien.com, at the same time. For members of the media who have listened to the call and have additional questions, please contact Eric Kraus our Head of Corporate Communications. For analysts having more detailed question involving
non-material information, both Ryan and I will be available to take your calls. Thank you and have a great day.
Operator
Thank you for your participation in todays conference. This concludes our presentation. You may now disconnect.
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IMPORTANT INFORMATION ABOUT THE TENDER OFFER
This filing is neither an offer to purchase nor a solicitation of an offer to sell any securities of ev3 Inc. COV Delaware Corporation
(Purchaser), an indirect, wholly-owned subsidiary of Covidien, has not commenced the tender offer for the shares of ev3 common stock described in this filing.
Upon commencement of the tender offer, Purchaser will file with the SEC a tender offer statement on Schedule TO and related exhibits, including the offer
to purchase, letter of transmittal, and other related documents. Following commencement of the tender offer, ev3 will file with the SEC a tender offer solicitation/recommendation statement on Schedule 14D-9. These documents will contain important
information about Covidien, ev3, the transaction and other related matters. Investors and security holders are urged to read each of these documents carefully when they are available.
Investors and security holders will be able to obtain free copies of the tender offer statement, the tender offer solicitation/recommendation statement
and other documents filed with the SEC by Purchaser and ev3 through the web site maintained by the SEC at www.sec.gov. In addition, investors and security holders will be able to obtain free copies of these documents by contacting:
Covidien
Investor Relations
508-452-4650
investor.relations@covidien.com
or
ev3 Inc.
Julie Tracy
Sr. Vice President
Chief Communications Officer
949-680-1375
jtracy@ev3.net
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