Let’s be honest there are days we’d rather be lucky than good. This morning while checking our email we came across an email that wasn’t meant for us but certainly caught our attention. It seems that our friends at Medtronic are getting very close to selling their diabetes franchise to a group of private equity firms. According to the documents we obtained this project is code named Icarus and outlines not just how this transaction will take place but what the plans are once the transaction is consummated.
Far as we can tell Medtronic considered multiple options before deciding on this path. One option considered then dismissed was to spin off the diabetes unit as a separate publicly traded entity which would have resurrected the MiniMed brand name. Another option was to combine diabetes with another unnamed unit and spin that off. Best we can tell the investment bankers weren’t confident under current conditions that an IPO would fly.
A second option was to keep the unit, strip it to the bone and keep milking the Golden Goose. According to an internal memo obtained by Diabetic Investor the company even considered abandoning their efforts to improve their sensor and doing a deal with Dexcom. The memo states; “We can’t get the f—king thing to work, we’ve thrown millions at it and the Control IQ is kicking our ass.”
Ironically the sources we have spoken with this morning noted the pending sale was considered a long shot as the multiple the company wanted was sky high. It seems what turned the tide was the members of the consortium of private equity firms who will operate under the name Daedalus, was willing to pay a higher multiple provided that Medtronic help finance the deal and further agreed NOT to be involved in the day to day operations. In exchange for this Medtronic will retain a 30% stake in the new MiniMed.
Now let’s be very clear here as this deal can fall apart at any time. The two sides appear to be very close, but nothing is set in stone nor have any documents been signed. Privately Medtronic is delighted, more like thrilled that at long last they found someone dumb enough to buy this unit. Again per internal memos obtained by Diabetic Investor one executive noted; “OMG I can’t believe these idiots actually want to buy this. Never in a million years did I think I would see the day.”
Diabetic Investor has been aggressively attempting to get a comment from Daedalus but so far just radio silence. That being said our belief is that after careful consideration they may be rethinking the deal or perhaps changing the terms. Our guess is they like us know that this franchise is wounded and without a major overhaul will continue to fall into the abyss. As we have noted before buying the franchise is quite frankly the easy part, fixing the many issues with it is a completely different story. Simply put after spending billions to buy it, millions more will be needed to fix it before they have any realistic chance at flipping it on another unsuspecting fool.
We are continuing to pursue this story from every possible angle giving it the attention it deserves on April Fool’s Day.