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August 15, 2014


Walgreen Abandons Inversion Deal Among Political Pressures

U.S. retailer Walgreen Co has decided to cancel its plan to reincorporate overseas to lower its tax bill, amidst a political push from the Obama administration to curb such corporate tax domicile-shifting deals.

Walgreen, the operator of the largest U.S. pharmacy chain, will follow through with its plan to purchase the remaining 55 percent it does not already own of European rival Alliance Boots ABN.UL, but the company has no intentions of using the purchase to reincorporate.

Walgreen’s decision to back away marks the third major inversion deal to collapse in recent months, and draws attention to the complexity and political sensitivity surrounding these types of transactions.

While pressure from investors to reincorporate was heating up, the backlash Walgreen faced from Democratic politicians, including the senior U.S. senator from its home state, Richard Durbin, was great.

“I believe you will find that your customers are deeply patriotic and will not support Walgreen’s decision to turn its back on the United States,” Durbin wrote to Walgreen CEO Gregory Wasson last month. “Nearly all of your $2.5 billion in profits earned last year were from sales to U.S. taxpaying customers.”

However, some analysts suggest the deal, coupled with political pressure, wouldn’t save Walgreen enough in taxes to be worth the hassle.

“Given Walgreen’s physical retail presence in the U.S. we believe Walgreen is somewhat unique relative to recent pharma manufacturer tax inversion deals. Walgreen ability to trim its tax bill may be less substantial relative to other industry tax inversions,” wrote Leerink Partners analysts in a note.

Meanwhile, Treasury officials have turned their focus towards slowing the recent surge in companies looking to reincorporate.

“Treasury is reviewing a broad range of authorities for possible administrative actions that could limit the ability of companies to engage in inversions, as well as approaches that could meaningfully reduce the tax benefits after inversions take place,” a Treasury Department spokesperson said in an email.

The spokesperson added that while there were steps the Treasury would be able to take, “legislation is the only way to fully address inversions.”

Three prominent Democratic senators urged President Barack Obama on Tuesday to use his executive authority to reduce or eliminate tax benefits for companies that might seek to invert.

Source: Drawbaugh, Kevin, Oran, Olivia, “Walgreen retreats from plan to move tax domicile abroad,” Reuters, August 6th, 2014