Walgreen stock hammered after it drops tax inversion plan
Drugstore chain faced public backlash over unpopular practice of shifting profits overseas
Walgreen plans to keep its headquarters in the United States, saying it will no longer pursue an overseas reorganization that would have shifted its base to another jurisdiction, lowering the U.S. taxes it pays.
There has been a steady stream of U.S. companies in the past year who use overseas mergers to shift their profits to offshore locations with lower corporate tax rates.
But it is a politically unpopular decision, with President Barack Obama saying he is seeking ways to block such tax inversions, calling them unpatriotic. On Tuesday, he said the Treasury Department is exploring ways to unilaterally block such deals, as a way of getting around a grid-locked Congress that would likely block any legislation.
Walgreen still plans to buy the remaining stake in Swiss health and beauty retailer Alliance Boots that it does not already own. However, the U.S. largest drugstore chain said it will not shift its headquarters to the U.K.
Walgreen's CEO Greg Wasson said Wednesday that the company "concluded it was not in the best long-term interest of our shareholders to attempt to re-domicile outside the U.S."
The company said it was not confident such a deal could withstand IRS scrutiny. Walgreen sells drugs to sick and elderly Americans whose costs are covered with Medicaid, a government-funded program and could have faced a public backlash.
Fear of backlash
"The company also was mindful of the ongoing public reaction to a potential inversion and Walgreens unique role as an iconic American consumer retail company with a major portion of its revenues derived from government-funded reimbursement programs," Walgreen Co. said in a statement.
Among the firms in the midst of tax inversions are drugmaker AbbVie, which announced last month it would buy Shire Plc, which is incorporated in the United Kingdom, and Medtronic Inc, which plans to buy Dublin-based rival Covidien Plc.
In an inversion, a U.S. company reorganizes in a country with a lower tax rate by acquiring or merging with a company overseas. Inversions allow companies to transfer money earned overseas to the parent company without paying U.S. taxes. That can help fund dividends and buybacks.
The U.S. corporate tax rate is 35 per cent, considered high by world standards.
Illinois senators praised Walgreen's decision, including Sen. Dick Durbin.
"As Walgreens themselves noted, Illinois has been their home for more than 110 years, and locating their global business here in the U.S. was the right decision for their customers, employees and shareholders. I’d add to that that it’s the right decision for every taxpayer in Illinois and across America," he said.
With files from the Associated Press