Walgreen Company (NYSE:WAG) is the largest US-based drugstore chain, which bought a 45% stake in the UK based drugstore chain, Alliance Boots in 2012 in a stock and cash deal worth $4.3 billion. They also included the option to buy the rest in three years, which was supposed to happen in the first quarter of 2015.
Walgreen Company (NYSE:WAG) has been under pressure from shareholders to shift their base to Europe with the new deal to lower their tax bills, which is often referred as ‘tax inversion’. Under a lot of pressure from Government, unions, and the consumers, Walgreen has decided to acquire the remaining 55% of Alliance Boots in a deal worth $12.3 billion in cash and stock, without moving their headquarters out of the US. Bloomberg’s Richard Rubin talked on Bloomberg TV about Walgreen’s latest move.
Rubin said that Walgreen Company (NYSE:WAG) has stated three reasons for avoiding ‘tax inversion.’ First reason was that the company was not confident about standing up to the IRS scrutiny and the other two reasons were potential consumer and government blowbacks. He pointed out that Walgreen has more direct interaction with public compared to other inverted companies like Medtronics, Inc. (NYSE:MDT).
“[…] It’s not just isolated to consumers seeing the news and then, maybe, thinking about going elsewhere. There were unions that were really pushing the company not to do this. There were Democratic senators who were really urging the company not to do this. […] If you are a company, the last thing you want to do is, give your consumers a reason not to walk in the door,” Rubin said.
Rubin added that the retroactive legislation that Congress was planning against inversion was not a big threat mainly due to the resistance from Republicans. He thinks that a major threat was the Treasury acting on their own and making some regulations, which might have affected the Walgreen Company (NYSE:WAG), even if they had inverted before the regulation comes in place. He feels that this concern forced Walgreen to avoid inversion. He added that the Treasury has to be more aggressive to make such regulations.
Rubin feels that any move by the Treasury to make regulations against inversion, might force companies to think twice before adopting the inversion. He thinks that not only Walgreen Company (NYSE:WAG) considered this measure to lower its tax bills, but there are other companies that, don’t worry about losing their consumers in the US, might invert in the future.