Walgreen has exercised its option to buy the remaining 55 percent of European pharmacy retailer and wholesaler Alliance Boots in a $15.26 billion deal that will keep its corporate tax headquarters in the United States.
The company that will emerge from the cash-and-stock transaction, Walgreens Boots Alliance, will be based in the Chicago area and include a mix of executives from both companies, Walgreen said Wednesday morning. The deal is expected to close by the end of March.
Walgreen President and Chief Executive Officer Greg Wasson, who will remain in that role in the new holding company, said a so-called corporate inversion, which would have moved its headquarters overseas, in part to take advantage of a lower corporate tax rate, wasn’t in the best long-term interest of shareholders.
The company’s board, in extensive analysis, Wasson said, “could not arrive at a structure that would provide a high level of confidence it would withstand a review” by the IRS.
He said Walgreen and Alliance Boots would have had to scrap their 2012 agreement and rework it entirely to structure the deal so that it would qualify for an inversion, a maneuver that potentially could have added hundreds of millions of dollars annually to the combined company’s bottom line.
Walgreen’s decision to maintain its tax domicile in the United States ends months of speculation and a steady drumbeat of criticism of the company from activists, unions and politicians, including President Barack Obama, for considering moving its headquarters overseas.
Public backlash to Walgreen weighing reincorporating either in the United Kingdom or Switzerland played a role in its decision to remain in the U.S., Walgreen said.
Such an undertaking would have been “much more complex” and “far different” from other corporate inversions announced so far this year, Wasson said.
Several U.S. companies, including AbbVie, Horizon Pharma, Medtronic, and Mylan, have orchestrated acquisitions that will allow them to shift their headquarters across the Atlantic to lower their corporate tax rate.
But Walgreen, by far the most visible to consumers, had come under increasing pressure to keep its tax base in the United States. Last week, the president called corporate inversions an “unpatriotic tax loophole,” and urged Congress to act on legislation to halt the exodus.
Some analysts and investors who worried that Walgreen faced a potential blowback from American consumers, and possibly the government, if it effectively renounced its U.S. citizenship.
Vishnu Lekraj, an analyst with Morningstar, said the “political and potential consumer backlash would have been significant,” particularly because of Walgreen’s “deep brand roots as ‘America’s Pharmacy.'”
The decision not to go through with the inversion disappointed investors. Shares of the drugstore chain fell as much as 7 percent in early afternoon trading Tuesday when news of the decision was first published by U.K.-based Sky News. The stock rebounded part way to close down 4.2 percent, at $69.12, but then resumed its decline on Wednesday, losing about 12 percent in early trading.
The new U.S.-based holding company will have four divisions: Walgreen, which will continue to be based in Deerfield, Ill.; Boots, which will maintain its headquarters in Nottingham, U.K.; Pharmaceutical Wholesale and International Retail; and Global Brands.
Walgreen has yet to determine the location of the new corporate headquarters of the holding company, though Wasson said it will remain in the Chicago area.