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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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o Preliminary Proxy Statement | |
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þ Soliciting Material Pursuant to §240.14a-12 |
Medtronic, Inc.
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1. | Why are you doing this transaction? | |
The combination of Restore Medicals Pillar implant technology with Medtronics ENT Business will broaden Medtronics product offering for the OSA (sleep apnea) treatment market and will provide ENT surgeons with a wider array of minimally invasive therapies to help alleviate their patients issues related to sleep apnea and snoring. | ||
The ENT business at Medtronic currently markets minimally invasive instruments and tools to treat other upper airway obstructions primarily in the sinuses and tonsils/adenoids. The Pillar technology from Restore Medical will now give Medtronic and its customers an effective, minimally invasive, low morbidity treatment option for those airway obstructions in patients caused by the soft palate. | ||
Second, the combination will accelerate the growth of Medtronics ENT business. The Pillar technology is a high gross margin product line. A large body of published clinical work is already in place supporting the Pillar technology, so no further investment is required in research and studies at this time. | ||
Lastly, once integrated, the sales team from Restore Medical will have access to existing Medtronic office-based products to market and grow the business. Medtronic will leverage its unparalleled distribution and marketing strength in the ENT market to improve patient and surgeon access to this technology. | ||
2. | How will this transaction benefit shareholders? | |
For Restore Medical shareholders, the $1.60 per share acquisition price represents approximately a 3X premium over Restore Medicals $0.55 share value as of April 22. For Medtronic shareholders, the transaction is anticipated to be positive to Medtronic earnings in the first full fiscal year after close. | ||
3. | This is clearly a healthy premium above the current share price of Restore Shares. Why? | |
Restore Medical stock declined from $1.10 due to an going concern opinion that was issued earlier this year. This going concern opinion is unrelated to Restore Medicals product offering. The premium Medtronic has offered to pay on Restore Medical shares is based on the value of the companys stock prior to the going concern opinion. It is important to note that Medtronic is acquiring Restore Medical for entry into the sleep apnea therapy arena and for the companys intellectual property. The value of both existing and potential product offerings is clearly important to Medtronic in the long term. |
4. | What synergies do you expect? | |
Medtronic expects the acquisition of Restore Medical to generate new revenue for the ENT business as well as provide cost and tax synergies. | ||
5. | Will there be layoffs? | |
First, this combination is about growing our ENT business in an underserved market where we can leverage our strengths. As with any acquisition, there will be some redundancies as two public companies merge to become one. Let me stress that one area we will not be targeting is the field sales force. The two companies have highly complementary sale forces and the ability to reach a larger and expanded customer base is one of the primary strategic objectives of the combination. | ||
6. | Do you expect revenue synergies from this acquisition? | |
We expect there to be top-line synergies, including those from increased direct sales of the Pillar technology, increased cross-selling opportunities resulting from existing Restore Medical sales teams to now offer their customers a broader range of products, a greater customer base across the ENT specialty area, and a deeper referral network. Other potential synergies include intellectual property, R&D opportunities for potential innovative technologies, and leveraging new applications of complementary product lines. | ||
7. | What specifically will Restore Medical add to your ENT business? | |
Restore Medicals Pillar implant technology will broaden Medtronics product offering for the OSA (obstructive sleep apnea) treatment market and will provide ENT surgeons with a wider array of minimally invasive therapies to help alleviate their patients issues related to OSA and snoring. | ||
Our ENT business currently markets minimally invasive instruments and tools to treat other upper airway obstructions primarily in the sinuses and tonsils/adenoids. | ||
Restore Medicals Pillar implant will now give Medtronic and its customers an effective, minimally invasive, low morbidity treatment option for those airway obstructions in patients caused by the soft palate. | ||
Restore Medical also has a very strong sales force that is highly complementary to our ENT sales force. Using the combined sales teams to reach a larger and expanded customer base is another key strategic objective of the acquisition. | ||
8. | Is a merger with Restore Medical part of a new strategic direction for the company? | |
No, this acquisition does not represent a change in Medtronics strategy. It is very consistent with what Medtronic has communicated for many years. This transaction reflects our strategy to grow sales and earnings by being opportunistic, bold, disciplined and strategic with internal startups and targeted acquisitions that augment top line growth prospects and diversify our business, geographic and payer mix. |
9. | Given your track record with acquisitions, what gives you confidence you can integrate this company? | |
While some market dynamics did in fact lead to initial execution results below deal expectations, in every case weve shown the ability to assimilate and run businesses to drive top line growth. We are convinced that we can get revenue growth and can successfully manage the integration process. | ||
10. | Whats the incremental benefit to your projected revenue, net income and EPS growth rates from the transaction? How will it impact EBITDA? | |
Incremental benefit to Medtronic is based on we believe in FY09 incremental $5 million in revenue and we expect to substantially grow that number. Accretive immediately as well be aggressive on synergies. Less than 1 percent impact on EBITDA. The strategic aspect of this acquisition is to develop a presence for Medtronic in sleep apnea. | ||
11. | Restore Medicals most recent annualized revenue and earnings appear to have fallen quite dramatically year-over-year. Are you afraid this trend will continue? | |
For a variety of reasons, net sales for Restore Medicals fiscal year 2007 declined to $4.1 million (a 30% decrease from prior fiscal year). Factors for this included several open sales territories, overall lifestyle medicine market conditions, a strategic sales shift to emphasize repeat business from existing customers, and a renewed focus on U.S. sales vs. international sales. The upside potential to increase sales once the integration begins is tremendous and we think this acquisition will help our ENT business achieve its growth objectives. | ||
12. | Did Restore Medical conduct an auction? Why not? Did Restore Medical receive any other indications of interest? Did Restore Medical management explore other options? | |
We completed a thorough review and negotiation process, and the companies are clearly aligned strategically. We believe that only these two companies can provide such unique benefits for patients, and Restore Medicals shareholders will receive an outstanding premium that rewards the company for its innovation. | ||
13. | Are there any existing issues that may require Medtronic to abandon the deal? | |
No. | ||
14. | How did this transaction come about? Who approached whom? When did discussions begin? | |
Restore Medical management recently approached Medtronic, and in light of our interest in the sleep apnea market, discussions ensued. They have a strong portfolio that we will explore as we develop and step up our presence through this acquisition. |
15. | What are the terms of the transaction? | |
Medtronic and Restore Medical have entered into a definitive agreement under which Medtronic will acquire all of the outstanding shares of Restore Medical for $1.60 per share. The total value of the transaction, including payment of the Restore Medical debt will be approximately $29 million. | ||
16. | Why all cash? Why not stock? | |
After careful analysis in conjunction with our advisors, we concluded that a cash transaction made the most sense for both Restore Medical and Medtronic. | ||
17. | Is there a break-up fee? How much? | |
Yes. $1.5 million. | ||
18. | What kind of protections does Restore Medical have in place should there be an interloper for either company (i.e., staggered board, poison pill, etc.)? | |
We believe our merger will be highly attractive to Restore Medical shareholders and are not going to speculate on what other people may do. | ||
19. | Is there an IPRD charge? | |
We expect to book a one time in-process R&D charge in the range of 10 percent of the acquisition price. | ||
20. | How will Medtronic finance this transaction? | |
The transaction will be financed through cash on our balance sheet. | ||
21. | Will this impact your ability to invest in your other growing businesses? | |
No. In fiscal year 2007, Medtronic reported operating cash flow of almost $3 billion and as we have described previously, we expect to generate almost $24 billion in cash flow during the next five years. We believe that the strength of our balance sheet will allow us to continue to repurchase shares, pay out dividends, and still fully invest in our existing businesses. | ||
22. | Have you completed your diligence? Did you see any data from clinical trials? Find any issues regarding option dating? | |
Our due diligence process has been completed and there were no material findings. We understand all the issues related to the transaction and have taken them under consideration. We are confident that they can be managed appropriately. |
23. | Do you have concerns about gaining reimbursement for the Pillar procedure? | |
We will invest as needed in order to obtain reimbursement, which will enable more patients to access this therapy. | ||
24. | What are the tax implications for Restore Medical stockholders? | |
Stockholders should always consult with their financial advisor on such issues. However, as a cash transaction, the transaction will be taxable under federal income tax laws. | ||
25. | Who served as financial and legal advisors to Medtronic? To Restore Medical? | |
Fredrikson & Byron is acting as legal advisor to Medtronic. We did not contract with a financial advisor. Dorsey & Whitney is acting as legal advisor to Restore Medical and Piper Jaffray & Co. is acting as their financial advisor. | ||
26. | Did you obtain a fairness opinion? | |
Restore Medical received a fairness opinion from Piper Jaffray. Medtronic did not obtain a fairness opinion. | ||
27. | Does Medtronic need shareholder approval for this transaction? | |
No. |
28. | Do you expect any antitrust issues? Any other regulatory/legislative hurdles to complete the transaction? | |
No. | ||
29. | When do you expect the transaction to close? | |
We expect the transaction to close in approximately 90 days. | ||
30. | What are the conditions to closing? | |
The acquisition is subject to approval by Restore Medical stockholders owning a majority of the outstanding stock with less than 10 percent of shareholders entitled to dissent asserting dissenters right and other customary closing conditions. | ||
31. | Is there any ongoing litigation against either company that would threaten the transaction? | |
While I cannot comment on any specific litigation, our due diligence indicates there is nothing at this time that we believe to be material to this transaction. |
32. | Will Medtronic or Restore Medical be filing a proxy statement? When? | |
Restore Medical will file a proxy within 30 days. | ||
33. | What percentage approval does Restore Medical need from its shareholders? | |
The merger must be approved by Restore Medical shareholders owning a majority of the outstanding Restore Medical shares. | ||
34. | Does Restore Medical receive any board seats as a result of the transaction? | |
No | ||
35. | Will Medtronic continue to pay its dividend? | |
Yes, we will continue to pay our current dividend. | ||
36. | How can shareholders get more information on the acquisition? | |
Medtronics Investor Relations group posts relevant information on the www.medtronic.com website. Or, investors may call them directly at 763-505-2694. For more information on Restore Medical, you can visit www.restoremedical.com. You may contact Restore Medical investor relations at 651-634-3111. |
37. | How will you integrate the two companies? | |
Medtronic and Restore Medical are developing plans to ensure a smooth transition once the transaction closes. We will be highly focused on ensuring that no business momentum is lost during the integration period. Upon closing, we will combine Restore Medical with our existing ENT business, integrating talent from both organizations. The Medtronic and Restore Medical management teams will work collectively to build an enterprise that fulfills our Mission and delivers sustainable value to our shareholders. | ||
38. | Do you see any problems integrating the two companies? Arent there overlapping operations? How will the sales forces be integrated? | |
We dont envision and difficulty integrating Restore Medical into our existing ENT business unit. The Pillar implant technology is a highly complementary therapy to our existing business. In addition, the two companies share similar cultures that will result in a smooth and rapid integration process, with no loss in patient and customer focus. Restore Medical and Medtronic serve similar customers with differing products, so we see immediate value in having an integrated sales force that will provide existing Restore Medical sales people with more tools to reach their customers and giving our existing ENT sales team the Pillar technology as yet another therapy to share with their customers. We believe the Restore Medical direct sales force will easily work with our existing sales structure. |
39. | What will happen to Restore Medical headquarter and other facilities? | |
Until the transaction closes, Medtronic and Restore Medical will operate as two separate companies. Accordingly, the Restore Medical headquarters in St. Paul will continue in a business as usual fashion. We will communicate further details as they become available | ||
40. | Who will run Medtronics ENT business? | |
Bob Blankemeyer is the head of our worldwide ENT business. Upon closing, Medtronic will work with Restore Medicals management to determine the best structure and staffing for all people and functions. This will occur over the next 60-90 days. Until the transaction closes, Medtronic and Restore Medical will operate as two separate companies and their management teams will remain intact. | ||
41. | What is the timeline for integrating Restore Medicals operations? | |
Until the transaction closes, Medtronic and Restore Medical will operate as two separate companies. A management team comprised of members from both companies will plan for the integration so there will be a seamless transition when the transaction closes. We will take a very disciplined, thoughtful approach to this integration in order to fully retain the strengths of the two organizations. | ||
42. | Will the combined business unit change its name? | |
We want to leverage and extract value from the strong Restore Medical and Pillar brand names and will put a plan into place to do that. Branding will transition to Medtronic over time. | ||
43. | Will Restore Medical senior management assume new roles at Medtronic? | |
Until the transaction closes, Medtronic and Restore Medical will operate as two separate companies. Upon closing, Medtronic will work with Restore Medicals management to determine the best structure and staffing for all people and functions. This will occur over the next 60-90 days. | ||
44. | What management/other retention plans do you have in place? | |
Details regarding retention plans have not been finalized and will be communicated as soon as plans are finalized. The respective management teams are working on these in order to have all plans finalized and communicated prior to close. | ||
45. | Does Restore Medical have golden parachute agreements with its executives? If so, what are the triggers? | |
Restore Medical executives have severance agreements and there are change of control provisions in play. |
46. | How will you prevent disruptions to business operations? | |
Until the transaction closes, Medtronic and Restore Medical will operate as two separate companies. A management team comprised of members from both companies will plan for the integration so there will be a seamless transition when the transaction closes. As a result, customers should not see any change in the high-quality products and service that they have come to expect. Sufficient safety stocks have been built by Restore to ensure an uninterrupted supply to their customers. |
47. | How will customers be affected by the transaction? | |
For the moment it is business as usual professional and consumer customers can expect the same high-quality products and service. Going forward, we will be able to deliver to our customers an even more compelling and diverse set of products and therapies, creating new opportunities in the growing minimally invasive and office-based therapies that ENT specialists demand. | ||
48. | Do you expect professional and consumer customers to oppose the merger? | |
No, we will continue to offer outstanding service and quality products. | ||
49. | What should I say if customers ask me about the transaction? | |
The combined company will deliver on our promise to provide a thorough product range to the ENT specialists and patients who depend on us. We will also continue to invest in research and development programs that will allow us to continually improve on our line of ENT products and therapies. | ||
50. | Does my sales representative change with this merger announcement? | |
Until the transaction closes, Medtronic and Restore Medical will operate as two separate companies. Accordingly, please continue to work with your current field representative to place orders, schedule cases and to answer your technical questions. If there are going to be any personnel changes that impact your service, we will contact you directly after the merger is approved and complete. | ||
51. | How do I place an order now that this merger announcement has come out? | |
Please continue to follow your current ordering process. If we change any of our processes after the merger is complete, then we will let you know right away. |
NEWS RELEASE |
. | Contacts for Medtronic: | Contacts for Restore Medical: |
||
Media: | Media and Investors: | |||
Chuck Grothaus 763-505-2614 |
J. Robert Paulson, Jr. 651-634-3104 |
|||
Investors: | Chris Geyen, CFO | |||
Jeff Warren | 651-634-3113 | |||
763-505-2626 |