The Chicago Tribune reports that Walgreen Co. will maintain its corporate tax headquarters in the United States after it completes the roughly $16 billion acquisition of Alliance Boots GmbH. The company’s decision, which executives will discuss Wednesday during a conference call, ends the drumbeat of criticism from numerous sources, including President Obama himself.
The news was first reported via the UK-based Sky News. Walgreen is also expected to announce plans to acquire the remaining 55 percent of Alliance Boots. According to the Tribune:
The decision not to go through with a so-called tax inversion disappointed investors, who clamored for such a move because it would have added hundreds of millions to the company’s bottom line annually. They pushed shares of the Deerfield-based drugstore chain fell on the news as much as 7 percent in early afternoon trading on Tuesday before rebounding to close down $2.99, or 4.2 percent, at $69.12.
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While the drugstore chain, the nation’s largest, had long said it planned to complete the acquisition of Bern, Switzerland-based Alliance Boots, it had not signaled its interest in moving its tax home overseas until this year. After meeting with a group of major investors in Paris this spring, Walgreen had weighed moving its domicile to either the U.K. or Switzerland in part to take advantage of a lower corporate tax rate.
Walgreen CEO Greg Wasson has said the company was considering the move.
“There are a lot of investors out there that are suggesting, and want us to at least consider an inversion. Frankly , it’s my fiduciary responsibility to explore all structures and all options and weigh the risk-reward scenarios with all of the above, as we are,” Wasson said last month. He said his charge is to “optimize shareholder value and what’s in the best interest of the company long term.”
Walgreen was not alone; several US companies have orchestrated acquisitions so they could shift their corporate headquarters across the Atlantic, to locations with a lower corporate tax rate. Walgreen, however, has become the most visible of them, and come under pressure to keep its headquarters — and tax base — in the United States. Last week, the President slammed the corporate inversions as an “unpatriotic tax loophole,” urging Congress to draft and pass legislation that would stop the hemorrhaging of corporations — and with them, American tax dollars:
The potential blowback from American consumers, and possibly, the government, if Walgreen effectively renounced its U.S. citizenship fomented fears among some analysts and investors, who worried that sales would suffer. Ajay Jain, an analyst with Cantor Fitzgerald, said in a Tuesday note to clients that Walgreen and Alliance Boots made the right decision by agreeing to stay in the U.S..
An inversion “otherwise would result in very significant long-term risks,” Jain wrote.
Vishnu Lekraj, an analyst with Morningstar, said the “political and consumer backlash would have been significant, particularly because of Walgreen’s “deep brand roots as ‘America’s Pharmacy.’”
But investors had factored the tax savings into Walgreen’s stock price, based on Tuesday’s sharp drop on the news.
“The stock price did reflect a strong possibility of an inversion,” Lekraj said. “The momentum within the market was building regarding an inversion which pushed the stock price higher.”
h/t Chicago Tribune