The Medtronic Inc. headquarters building stands in Minneapolis, Minnesota, U.S., on Monday, June 16, 2014. Medtronic Inc., the second-largest maker of medical devices, agreed to buy Covidien Plc for $42.9 billion. (The Minnesota Star Tribune)

The promise of 1,000 new Minnesota jobs was not enough to convince the state's pension board to support a $48 billion corporate transaction that will move Medtronic's legal headquarters overseas.

A four-member subcommittee of the State Board of Investment (SBI) decided Friday morning not to vote when shareholders are asked Tuesday to approve Medtronic's acquisition of Irish health care supplier Covidien.

Critics on the state pension board said they were concerned that the deal, which is widely expected to be approved by shareholders, will help the Fridley-based medical-device company avoid taxes while providing "preferential" tax perks to executives.

"The SBI voting precedents are, as a matter of public policy, to vote against both offshore tax avoidance transactions and golden parachutes like this one," Deputy Attorney General Christie Eller said at the meeting in St. Paul on Friday. "The attorney general's office supports the precedents of the SBI as appropriate principles consistent with our duty as fiduciaries. The inversion is a tax-avoidance transaction."

An inversion is a deal in which a U.S. company moves its legal headquarters to a lower-tax country through a corporate acquisition. Medtronic executives have said expanded business opportunities, not tax benefits, are driving the deal. Emily Johnson Piper, deputy chief of staff for Gov. Mark Dayton, said during the meeting Friday that the governor's office supports the Covidien acquisition because of the jobs it will bring to Minnesota.

"The president and CEO of Medtronic personally promised the governor that if the deal went through, it would bring another 1,000 jobs to Minnesota," Dayton spokesman Matt Swenson said in a follow-up interview. "I think that's an important distinction."

Medtronic and Covidien shareholders will vote Tuesday morning whether to approve the deal. The state retirement board controls 117,130 Medtronic shares and 427,825 Covidien shares through its various retirement and trust funds. Although the board generally votes in favor of mergers recommended by management, the office's staff seeks direction from the proxy subcommittee in controversial cases.

The Medtronic deal will move the combined company's legal address to Ireland, leaving its "operational" headquarters in Minnesota. Medtronic has committed to creating 1,000 Minnesota jobs within five years of the deal, and investing $10 billion in U.S. medical technology above existing spending plans in the next decade.

Although Ireland's corporate taxes are about a third of the U.S. rate of 35 percent, company officials say their overall global tax rate is only likely to drop a point or two from the current global blended rate of 17.3 percent because so much company revenue is already recognized outside the U.S.

Medtronic management is also urging shareholders to support the company paying an estimated $73 million to cover special excise taxes on executive stock options that will come due as part of the inversion. That includes paying executives' excise taxes tax, as well as the income tax on the money used to pay the tax -- a type of compensation called an executive gross-up.

"This transaction is going to give management preferential treatment because the company pays for executives' adverse tax consequences arising from the transaction," Eller said at the meeting Friday. "That's a benefit not being provided to shareholders. It is bad public policy to insulate corporate executives from tax consequences of a transaction which other shareholders are going to have to bear."

Medtronic officials have stressed that executives including Ishrak will face the same capital gains taxes as any shareholder. The extra payments are intended to cover the special federal tax that applies only to executives.

"This excise tax is in addition to the tax on the exchange of shares and it is not applicable to any other shareholders of the company," Medtronic spokesman Fernando Vivanco said in an e-mail. "Assisting them allows the directors and officers to focus on the welfare of the company, knowing that their financial position will be the same as all other shareholders regardless of their decision to move forward with a transaction or not."

It's not clear that the state pension board's decision will be anything more than symbolic, since the state owns a very small fraction of the two companies.

On Tuesday, Medtronic needs approval from the owners of half of its 984 million outstanding shares, and Covidien needs a Yes vote from owners of three-quarters of its 453 million shares. If shareholders vote in favor, the deal will go to the Irish High Court, which is expected to spend several weeks deciding whether to grant final approval of the sale.

Joe Carlson • 612-673-4779

Twitter: @_JoeCarlson