Medtronic to Buy Covidien

The world's biggest medical devices maker (in terms of sales), Medtronic, will buy Ireland-based rival Covidien in a US $42.9 billion agreement that could increase concerns about the rush of US companies striking deals to cut their tax bills.

"This acquisition will allow Medtronic to reach more patients, in more ways and in more places," Medtronic Chairman and CEO Omar Ishrak said in a statement.

Minneapolis-based Medtronic will create two new, Irish-listed companies called New Medtronic and New Medtronic Sub through which it will channel the transaction. As well as saving on Medtronic's tax bill, the acquisition is expected to deliver around $850 million of annual pre-tax savings by the end of 2018.

"To finance the deal, they have some $13 billion to $14 billion in cash trapped overseas. They wanted to free that up to use that," former Medtronic Chairman and CEO Bill George told CNBC.

Medtronic is the latest US company to do a "tax inversion" – to move its base overseas for tax purposes, so that overseas revenues will be taxed at a lower rate. This kind of move particularly suits pharmaceutical companies because they tend to be cash-rich and generate a significant amount of their revenues overseas.

Medtronic was careful to stress its commitments to research and development in the US as part of the deal, and pledged to spend a further US $10 billion in the country over the next decade.