Walgreen is getting hitched with a drugstore giant based in Switzerland — but it won’t be moving to the Alps.
he Chicago-based drug chain backed off a controversial plan to move its corporate address overseas in order to dodge US taxes, after agreeing to buy the remaining 55 percent of Swiss-based Alliance Boots that it doesn’t already own.
On Wednesday shareholders had an inverse reaction to the plan, sending shares tumbling more than 14 percent, to $59.21, aided in part by a cut in the 2014 outlook for the chain.
Under pressure from investors, including New York hedge fund Jana Partners, Walgreen had been weighing a tax-avoidance scheme known as a tax inversion that has drawn increasing criticism from top US politicians, including President Obama.
Under such deals, big US companies lately have moved their corporate addresses to low-tax countries like the UK, Ireland and Switzerland to skirt obligations to Uncle Sam.
On Wednesday, Walgreen said it decided that a tax-inversion faced a substantial risk of being blocked by the IRS. With its major outlines already struck in 2012, the Alliance Boots deal would have to be scrapped and restructured to pass scrutiny from tax authorities, execs said.
What’s more, CEO Greg Wasson acknowledged that the scheme could have been a p.r. nightmare at home, where critics have noted that Walgreen gets as much as a quarter of its revenue from Medicare and Medicaid.
In a statement, Walgreen cited its “unique role as an iconic American consumer retail company with a major portion of its revenues derived from government-funded reimbursement programs.”
The merger, which includes a $5.26 billion payment to Alliance Boots plus another $10 billion in stock, is slated for completion in March 2015.