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Tax Issues Related to the Buyout of Covidien (COV) by Medtronic (MDT)
Many of your investment clubs own either Covidien (COV) or Medtronic (MDT) or both. Medtronic has announced that they plan to acquire Covidien and then change their place of incorporation to Ireland.

The combination is still subject to shareholder approval so the date of the transaction is not available yet. However the expected tax consequences of the anticipated distribution are described in this filing:

Rule 2.5 Filing


Upon completion of the transaction, each outstanding ordinary share of Covidien will be converted into the right to receive $35.19 in cash and 0.956 of an ordinary share of Medtronic plc. The per-share consideration represents a premium of 29% to Covidien's closing stock price on June 13, 2014, the last trading day prior to the announcement. Medtronic shareholders will exchange each share of stock they own in Medtronic for one ordinary share of stock in Medtronic plc. The transaction is expected to be taxable, for U.S. federal income tax purposes, to shareholders of both Medtronic and Covidien.

This means you will have taxable income from the transaction whether you now own COV or MDT. This will happen even if you keep your MDT shares. Since MDT is becoming a foreign company, you'll have to recognize the same capital gain as you would if you sold them as of the effective date of the MDT re-domicile.

You might want to factor this into any portfolio decisions you are making in the near term.

Laurie Frederiksen
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