NOTE B – ACQUISITIONS AND STRATEGIC INVESTMENTS

Our unaudited condensed consolidated financial statements include the operating results for acquired entities from the respective date of acquisition. We have not presented pro forma financial information for acquisitions given their results are not material to our unaudited condensed consolidated financial statements. Transaction costs associated with these acquisitions were expensed as incurred and are not material for the first quarter of 2019 and 2018.

Proposed BTG Acquisition

On November 20, 2018, our board of directors and the board of directors of our wholly owned indirect subsidiary, Bravo Bidco Limited (Bidco), and BTG plc (BTG), a public company organized under the laws of England and Wales, issued an announcement (the Rule 2.7 Announcement) under Rule 2.7 of the United Kingdom City Code on Takeovers and Mergers, disclosing the terms of a recommended cash offer to be made by Bidco for the entire issued and to be issued ordinary share capital of BTG (the proposed BTG Acquisition). In connection with the proposed BTG Acquisition, (i) we entered into a co-operation agreement with Bidco and BTG, (ii) certain shareholders and each BTG director owning shares of BTG delivered deeds of irrevocable undertakings to Bidco and (iii) we entered into a bridge credit agreement (Bridge Facility) that we terminated in February 2019 upon the closing of our senior notes offering. Refer to Note E – Borrowings and Credit Arrangements for further details. On February 14, 2019, each of the Company and BTG received a request for additional information and documentary material from the United States Federal Trade Commission in connection with the proposed BTG Acquisition.

On January 24, 2019, Bidco made such offer on the terms and subject to the conditions of the scheme document published on the same date. On February 28, 2019, a majority in number of BTG shareholders approved the scheme document published on January 24, 2019.

Under the terms of the proposed BTG Acquisition, BTG shareholders will receive 840 pence in cash for each BTG share, which values BTG’s existing issued and to be issued ordinary share capital at approximately £3.311 billion (or approximately $4.317 billion based on the exchange rate of U.S. $1.30: £1.00 as of March 29, 2019). We intend to implement the proposed BTG Acquisition by way of a court-sanctioned scheme of arrangement under Part 26 of the United Kingdom Companies Act 2006, as amended. Subject to the satisfaction or waiver of all relevant conditions, we expect the proposed BTG Acquisition to be effective in mid-year 2019. BTG develops and commercializes products used in minimally-invasive procedures targeting cancer and vascular diseases, as well as acute care pharmaceuticals.

2019 Acquisitions

Millipede, Inc.

On January 29, 2019, we announced the closing of our acquisition of Millipede, Inc. (Millipede), a privately-held company that has developed the IRIS Transcatheter Annuloplasty Ring System for the treatment of severe mitral regurgitation. We have been an investor in Millipede since the first quarter of 2018 as part of an investment and acquisition option agreement, whereby we purchased a portion of the outstanding shares of Millipede along with newly issued shares of the company for an upfront cash payment of $90 million. In the fourth quarter of 2018, upon the recent successful completion of a first-in-human clinical study, we exercised our option to acquire the remaining shares of Millipede. We held an interest of approximately 20 percent immediately prior to the acquisition date. We remeasured the fair value of our previously-held investment based on the implied enterprise value and allocation of purchase price consideration according to priority of equity interests. The transaction price for the remaining stake consists of an upfront cash payment of $325 million and up to an additional $125 million payment upon achievement of a commercial milestone. Millipede is part of our Interventional Cardiology business.

Purchase Price Allocation

We accounted for the acquisition of Millipede as a business combination, and in accordance with FASB ASC Topic 805, Business Combinations, we recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. The preliminary purchase price was comprised of the following components:



(in millions)
Payment for acquisition, net of cash acquired	$	321
Fair value of contingent consideration	87
Fair value of prior interest	103
	$	510

The following summarizes the preliminary purchase price allocation for the Millipede acquisition as of March 31, 2019:



(in millions)
Goodwill	$	271
Indefinite-lived intangible assets	295
Other assets acquired	2
Liabilities assumed	(1		)
Net deferred tax liabilities	(57		)
	$	510

We allocated a portion of the preliminary purchase price to the specific intangible asset category as follows:



	Amount Assigned (in millions)		Amortization Period (in years)	Risk-Adjusted Discount Rates used in Purchase Price Allocation
Indefinite-lived intangible assets:
In-process research and development (IPR&D)	$	295	N/A	20%

2018 Acquisitions

We did not close any material acquisitions during the first quarter of 2018, nor did we record any material purchase price adjustments to the preliminary purchase price allocations of the 2018 acquisitions in the first quarter of 2019.

Goodwill was primarily established due to synergies expected to be gained from leveraging our existing operations as well as revenue and cash flow projections associated with future technologies and has been allocated to our reportable segments based on the relative expected benefit. Based on preliminary estimates updated for applicable regulatory changes, the goodwill recorded relating to our 2019 acquisition is not deductible for tax purposes.

Contingent Consideration

Changes in the fair value of our contingent consideration liability were as follows:



(in millions)
Balance as of December 31, 2018	$	347
Amount recorded related to current year acquisition	87
Contingent consideration expense (benefit)	(28		)
Contingent consideration payments	(11		)
Balance as of March 31, 2019	$	394

As of March 31, 2019, the maximum amount of future contingent consideration (undiscounted) that we could be required to pay was approximately $914 million.

The recurring Level 3 fair value measurements of our contingent consideration liability include the following significant unobservable inputs:



Contingent Consideration Liability	Fair Value as of March 31, 2019	Valuation Technique	Unobservable Input	Range
R&D, Regulatory and Commercialization-based Milestones	$276 million	Discounted Cash Flow	Discount Rate	3	%	-	4%
			Probability of Payment	17	%	-	99%
			Projected Year of Payment	2019		-	2027
Revenue-based Payments	$119 million	Discounted Cash Flow	Discount Rate	11	%	-	15%
			Probability of Payment	60	%	-	100%
			Projected Year of Payment	2019		-	2026

Projected contingent payment amounts related to some of our research and development (R&D), commercialization-based and revenue-based milestones are discounted back to the current period using a discounted cash flow model. Projected revenues are based on our most recent internal operational budgets and strategic plans. Increases or decreases in projected revenues, probabilities of payment, discount rates or the time until payment is made may result in significantly lower or higher fair value measurements.

Strategic Investments

The aggregate carrying amount of our strategic investments were comprised of the following categories:



	As of
(in millions)	March 31, 2019		December 31, 2018
Equity method investments	$	199	$	303
Measurement alternative investments (1)	112		94
Publicly-held equity securities (2)	1		—
Notes receivable	31		26
	$	342	$	424


(1)	Measurement alternative investments are privately-held equity securities without readily determinable fair values that are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.


(2)	Publicly-held equity securities are measured at fair value with changes in fair value recognized currently in Net income (loss).

These investments are classified as Other long-term assets within our accompanying unaudited condensed consolidated balance sheets, in accordance with U.S. GAAP and our accounting policies.

As of March 31, 2019, the cost of our aggregated equity method investments exceeded our share of the underlying equity in net assets by approximately $226 million, which represents amortizable intangible assets, IPR&D, goodwill and deferred tax liabilities.