Walgreen turns down inversion that would cut tax bill

Walgreen Co. plans to keep its roots firmly planted in the United States, saying it will no longer pursue an overseas reorganization that would have trimmed its U.S. taxes but which drew political scorn.

The nation’s largest drugstore chain, which bills itself as “America’s premier pharmacy,” said Wednesday that it will buy the remaining stake in Swiss health and beauty retailer Alliance Boots that it does not already own.

The cash-stock deal is valued at more than $15 billion. Walgreen had contemplated the move since buying a 45% share in 2012.

Walgreen will not pull off an inversion, however, a tactic that has become increasingly popular with U.S. companies seeking tax cuts but which has sparked growing backlash in Washington.

The pressure from investors remains intense, however, and shares of Walgreen tumbled sharply Wednesday after the Deerfield, Ill., company announced its plans and lowered its 2016 earnings goal for the combined company. The shares closed down $9.91, or 14%, at $59.21.

There have been 47 U.S. companies that have put together inversions through tie-ups with foreign businesses over the past decade, according to the Congressional Research Service.

Several others are planning or considering the move. Those including the drug maker AbbVie, which last month announced a roughly $55-billion combination with drug maker Shire, which is incorporated in Britain.

Walgreen, however, said it was not confident such a deal could withstand IRS scrutiny.

A spokesman also said its original agreement with Alliance Boots, which runs Britain’s largest drugstore chain, also was not structured as an inversion, and that would have forced the company to essentially create a new deal.

Walgreen CEO Greg Wasson said the board and outside advisers weighed several benefits and risks, including the hard-to-quantify but significant potential for consumer backlash and political headaches.

Companies are facing growing pushback from Democrats in Congress and President Obama because of lost U.S. revenue from corporate taxes from inversions. On Tuesday, the Treasury Department said that it was considering actions that could limit the ability of companies to use the tactic.

Illinois Sen. Dick Durbin had sent a letter to Wasson urging him to reconsider an inversion and warning that the company may find its customers are “deeply patriotic and will not support Walgreen’s decision to turn its back on the United States.”

In an inversion, a U.S. company reorganizes in a country with a lower tax rate by acquiring or merging with a company overseas. Inversions allow companies to transfer money earned overseas to the parent company without paying additional U.S. taxes.

Inversions also can provide some relief from the U.S. corporate tax rate of 35%, which is the highest in the industrialized world.

Walgreen had drawn criticism for considering an inversion, in part because it receives part of its revenue through government-funded programs that help cover elderly people and the poor.