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6/16/14

MDT-COV Deal

We currently own 216 shares of Medtronic and 145 shares of Covidien in the Tiger Fund. See above for
more information about the positions and potential arbitrage.
Should we change either of these positions as a result of the merger agreement?
1. Do we want to own the combined companies?
Yes, but at a lower proportion.

2. Do we want to own each company separately until the potential deal closes?
Owning both sides of the deal would double the exposure that we have in this merger and also
double the risk. However, I would not suggest selling either position immediately because the
price of either company seems to be highly volatile at the moment. COV price is moving upward
and there is still possibility for higher prices as the closing price yesterday (Monday) is still
approximately $5 away from the deal price. MDT price is moving slightly downward yesterday,
which reflects the immediate response of investors, but this immediate effect should not last
long. Still, for the time from now until the potential deal closes, I would suggest selling the COV
position when its price increases to the point slightly lower than the deal price (maybe up to $2
away from the deal price) and use the cash to buy the shares of another potential merger
target in the health industry so as to maintain our allocation in the health industry and maintain
the upside potential without risking that the MDT-COV deal may not turn out successful.

If the deal turns out unsuccessful, the gain that we realized from the sale of COV would
potentially more than offset the loss in our MDT position (although MDT prices may not even
decrease at all). If the deal turns out successful, we still share the gain with MDT prices and
maintain our position in the combined company for further consideration.

3. What is the downside risk to owning Covidien?
The downside risk is that the deal will not be completed due to change in tax laws (Medtronic
has the right to cancel the takeover if Congress changes the tax laws in a way that results in the
combined company being considered a US tax payer) or that the deal is not accepted by the
authority.

4. What is the downside risk to owning Medtronic?
The downside risk is that the merger turns out to be not profitable due to various reasons
(failure to account for hidden expenses/liabilities, partial responsibility for the Tycos tax
penalties challenged by IRS, change of Congress tax laws that results in the combined company
still being considered a US tax payer, the potential synergy not achieved, etc.), and the deal
turns out to be a big mistake.

5. What is the upside potential to owning Covidien?
Given that the deal will be completed successfully, Covidien stockholders will receive $93.22 per
shares, composed of $35.19 in cash and 0.956 of a Medtronic share. That deal price presents an
almost 6.6% premium to Covidiens current share price. Furthermore, Covidien shareholders will
also share the upside potential of the synergy by owning 30% of the combined company.

6. What is the upside potential to owning Medtronic?
Owning Medtronic exposes shareholders to the upside potential of the combined company due
to the synergy that the combined company expects to achieve, as well as the tax savings due to
the tax-inversion side of the deal.

7. What change if any should we make to our Medtronic and Covidien positions?
As indicated above, I would suggest selling the COV position only when its price increases to the
point slightly lower than the deal price (maybe up to $2 away from the deal price) and use the
cash to buy the shares of another potential merger target in the health industry so as to
maintain our allocation in the health industry and maintain the upside potential without risking
that the MDT-COV deal may not turn out successful. We will keep our position in MDT so as to
share the gain with MDT prices should the merger turn out successful, and maintain our position
in the combined company for further consideration later on.