This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Walgreen's U.S. Fate Could Be Sealed by Labor Day

NEW YORK (TheStreet) - Expect Walgreen's (WAG) to soon say whether the company will move its headquarters outside the U.S. in an effort cut its corporate tax rate. That expected color comes after a handful of large Walgreen's investors began pressing the company to consider a move to a lower-tax jurisdiction as part of its acquisition of European pharmacy giant Alliance Boots.

Walgreen's purchased 45% of Alliance Boots from private equity firm KKR in 2012 for $4 billion in cash and $2.7 billion in stock. The company also agreed to an option to buy the rest of Alliance Boots, in coming years, for $9.5 billion.

While Walgreen's didn't chose to use the first leg of the transaction to invert its ownership abroad for tax purposes, the second leg of the transaction is nearing and investors as prominent as Jana Partners are now pressing for such a move.

That has come to a boiling point in recent months, as operating performance at Walgreen's core business in the U.S. has stalled, and management publicly expressed no interest in a move to a lower-tax jurisdiction.

Must Read: Omnicom Divorce: Remember Airbus?

On a fourth quarter earnings call, Walgreen's CEO Gregory D. Wasson said, "[Just] to reiterate, as I said on the last call, we have no plans to do an inversion." In that earnings release, Walgreen's forecast its tax rate to be about 37.5%, while Alliance Boots would be around 20%.

Within weeks, shareholders such as Jana Partners then requested a meeting with management to express their frustration, as the Financial Times first reported.

Jana and other investors at the meeting pitched their views on the merit of an inversion and Walgreen's appears to have taken the message, Crain's Business Chicago noted in a report that speculated Walgreen's management might lose its grip of the company through the Alliance Boots deal.

At a Barclays analyst conference on April 30, Walgreen's management changed its tune on an inversion. Such a tax move is being considered, the company said.

"We're evaluating all of that. We are aware of all of the inversions that are happening and certainly all of that is being investigated in Part II," Walgreen's investor relations head Rick J. Hans said. "We've never been a proponent to pay more taxes than we have to. We try to optimize that. It creates value," he added, while noting that there could be costs and benefits to such a move.

Obvious costs would include increased public scrutiny of a move abroad, possible customer defections and government reaction, especially because the pharmacy benefits operations of Walgreen's are a recipient of Medicare and Medicaid-related drug prescription dollars. Benefits would include a tax rate that could drop as low as 20%, according to tax expert Robert Willens.

A part of Walgreen's changing commentary that hasn't been reported on is how quickly a decision may be made. Hans, the Walgreen's IR executive, said at the Barclays conference investors should expect a decision on the possible inversion by late summer or early fall, when the company files its annual proxy to shareholders.

"[You'll] have that certainly by the time we come over the proxy," Hans said of whether or not Walgreen's will pursue an inversion. "You'd see some details on that," he added, while noting the proxy is slated for late summer or early fall.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
CVS $104.60 -0.52%
PFE $33.43 -0.42%
WAG $81.65 2.05%
AAPL $92.07 -1.30%
FB $119.02 1.00%


Chart of I:DJI
DOW 17,680.37 +19.66 0.11%
S&P 500 2,050.19 -0.44 -0.02%
NASDAQ 4,710.1590 -6.9350 -0.15%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs