The European Commission has cleared under the EU Merger Regulation the proposed acquisition of Covidien, an Ireland-based manufacturer of medical devices with worldwide activities, by Medtronic, a US-based company active in medical technologies and therapies. The decision is conditional upon the divestment of Covidien's Stellarex, a promising drug coated balloon currently in development, which, once launched, would compete with Medtronic's leading drug coated balloon device In.Pact. The Commission had concerns that the transaction, as initially notified, would have removed a credible future competitor of Medtronic and reduced innovation in this area. The commitments offered by Medtronic address these concerns.
The Commission examined the competitive effects of the proposed acquisition in particular on the markets for peripheral vascular and electrosurgical devices, where the companies' activities overlap. Peripheral vascular devices such as stents, PTA balloon catheters and embolic protection devices, are used in the treatment of diseases caused by cholesterol-containing fat or blood clots accumulated in the vessels. Electrosurgical devices are used for performing parts of surgery with the use of electric current.
The Commission's investigation indicated that the transaction would raise no competition concerns, except in the market for drug coated balloons. There are few competitors currently active in this market and they exert limited competitive pressure on the market leader, Medtronic. It is likely that Covidien would have constrained Medtronic in the near future, in view of the promising first clinical trials' results of Stellarex, its drug coated balloon in development. The acquisition, as initially notified, would therefore have eliminated a credible competitor and would likely have reduced innovation in this area.
In order to address these concerns, Medtronic committed to sell Covidien's worldwide Stellarex business, including manufacturing equipment, related IP rights and scientific and regulatory material necessary for ensuring the completion of the Stellarex trials. They further committed to, for a transitional period, supply the purchaser with the balloons on which the drug is applied as well as to transfer staff, including some key personnel. This will provide the purchaser with all assets necessary to bring Stellarex to the market and remedy the identified competition concerns.
The Commission also looked at whether the transaction would have allowed the merged entity to propose packages combining medical devices from its expanded portfolio after the acquisition. The Commission concluded that this was unlikely, as the devices of Covidien and those of Medtronic are mostly used in different procedures; packages containing products from both would not have much interest for customers.
The Commission therefore concluded that, in light of the proposed commitments, the transaction would no longer raise competition concerns. This decision is conditional upon full compliance with the commitments.
The transaction was notified to the Commission on 10 October 2014.
Companies and products
Medtronic Inc. is a publicly listed US company, world leader in the development of medical technology and the provision of products and services treating a variety of conditions, including cardiac and vascular diseases, diabetes, and neurological and musculoskeletal conditions. It is headquartered in Minneapolis, Minnesota and employs over 46 000 people in more than 140 countries.
Covidien plc. develops and manufactures a range of medical devices and supplies, including for laparoscopic surgery, electrosurgery, biosurgery and vascular therapies. Covidien employs around 38 000 people and sells its products in over 150 countries.
Stellarex is Covidien's business line for the development of a drug coated balloon, that is expected to receive the mandatory conformity marking for medical devices sold in Europe (CE mark) in late 2014 or early 2015 and to be launched immediately after in Europe.
Merger control rules and procedures
The Commission has the duty to assess mergers and acquisitions involvingcompanies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.
The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).