Medtronic is allergic to organic growth. The leaders would rather cut cost everywhere to make their golden parachute bigger.
This is one of our biggest problems. We have leadership that doesn't care about the employees or the company. That kind of combination is guaranteed to result in constant layoffs. It's not a long-term solution, but they know that and they don't care. As long as their wallets are getting fatter, they're happy.
Covidien has irreparably changed the trajectory of this company. Thanks Geoff. This is a recent analysis post on Linkedin worth reading:
"In Jan 2015 hashtag#Medtronic completed its acquisition of hashtag#Covidien for $43B. The acquisition received a lot of media attention as it was the biggest MedTech acquisition ever. At the time Medtronic had 50,000 employees and Covidien had 40,000 employees, which made the hashtag#acquisition more like a hashtag#merger. The acquisition brought with itself a lot of cultural challenges, but for the purpose of this post, I will focus mainly on its impact on the economics of Medtronic.
Impact on Revenue
Prior to the acquisition, in years 2013, Covidien reported $10.2B and Medtronic reported $16.6B in annual hashtag#revenue. Following the acquisition Medtronic’s revenue almost doubled, reaching $29B in 2016, making it the world’s largest medical device company by revenue. However, beyond the initial increase, its revenue remained mostly the same.
Impact on Earnings
Many saw the acquisition dilutive as Medtronic had much better hashtag#margins compared to Covidien (i.e. 25% Profit Margin vs 15%). In year 2013, Covidien reported $1.6B and Medtronic reported $3.5B in hashtag#earnings. The expectations were that following the merger Medtronic’s earning would go well above $5B especially given that leadership spoke a lot about creating synergy between the two entities. However, following the acquisition, despite Medtronic’s revenue doubling, its earnings remained flat. In other words, the company traded profit margin for higher revenue.
Tax Play
Tax played a big role in this acquisition. Medtronic, which was an American company, used this acquisition as an opportunity to relocate its legal location to Ireland to reduce its tax rate. The move received a lot of criticism, including some from existing shareholders and employees that were forced to pay capital gain. But in the end, it should have allowed Medtronic to pay less income tax and increase its earnings even further. Something that did not happen, as Medtronic only managed to keep its original earnings and Covidien earnings were mostly lost in the process.
Impact on Market Cap
There is always a very high correlation between company earnings and its valuation/market cap. This is mainly because hashtag#valuation is done by looking at a company’s potential future earnings. Following the acquisition Medtronic market cap started to rise as it signaled that it would generate higher earnings in coming years. By 2021 Medtronic’s market cap reached $180B. But as the time went by it became clear that higher earnings are not going to materialize. Consequently, its market cap started to decline. Today, Medtronic’s market cap is close to what it was prior to the acquisition i.e. $100B.
It will be interesting to see if Medtronic can turn this around in coming years, perhaps by focusing on restoring its margins. Another potential strategy for the company could be to spin off parts of its business to improve its overall economics."
"This is key --- who was the last leader that served even more than 4 years in same leadership role. There's just no sustained leadership."
I laugh at the hypocrisy of our leaders. We were told we need to be loyal to the company and look down on people who job hop for better pay.
"Medtronic no longer has the patience to develop growth internally. if you cant show your OU president or portfolio leader how the RD spend turns into revenue in 36 months they dont want to hear about it. this is a symptom of hiring leaders who only want to put in some time as resume fodder for their next move."
This is key --- who was the last leader that served even more than 4 years in same leadership role. There's just no sustained leadership.
Medtronic no longer has the patience to develop growth internally. if you cant show your OU president or portfolio leader how the RD spend turns into revenue in 36 months they dont want to hear about it. this is a symptom of hiring leaders who only want to put in some time as resume fodder for their next move. Bring back leaders who are committed to the buisness and customers and who want to stay in the game for the duration, and you'll see the right kind of projects get brought up again. You know, the leaders that Geoff ran out of the company.
Our leader told us to "Do Better, with less". What kind of BS is that? I agree with you Medtronic leaders doesn't want organic growth anymore. It's all about short term profits to enrich the leaders before they bail this shinking ship.
Awwww, you’re unhappy I can see. Why not try pounding some sand??