Dublin-based Medtronic is buying back shares as part of an internal reorganization of capital following its purchase of Covidien a year ago. It's also hinting at more mergers and acquisitions.
The move frees up $9.3 billion in cash and equity securities net of tax for general corporate purposes. The company expects to return $5 billion of the funds to shareholders through share buybacks executed before the end of fiscal 2018, according to a news release.
Those funds had previously been held by Medtronic's U.S.-controlled overseas subsidiaries. The devicemaker said it will use the remaining proceeds to either prepay existing debt or pay debt as it comes due by the end of fiscal 2018.
Medtronic said the reorganization will help it meet a target “A” credit profile, return a minimum of 50% of its cash flow to shareholders through dividends, and pursue “financially disciplined” mergers and acquisitions, though the company did not specify what the M&A activity might entail.
Moody's downgraded Medtronic to A3 from A2 after it closed the Covidien deal, citing its “large scale and diversification, tempered by a strong commitment to shareholders and relatively high gross debt levels.” The cash-and-stock deal was valued at approximately $49.9 billion.
The company says it can now more quickly meet its targeted dividend payout ratio of 40%. Decisions on annual dividends are typically announced in June.
The restructuring is not expected to affect the company's fiscal 2016 income statement, but it will be accretive to earnings per share starting in fiscal 2017.