Tuesday, April 15, 2014

Walgreens Faces Post-Alliance Boots Inversion Pressure

According to yesterday’s Financial Times, powerful investors are actively lobbying Walgreens to move its headquarters to Europe. Here’s the story: Walgreens urged to leave US to gain tax benefit.

Yes, this is the infamous “tax inversion” strategy that I analyzed in last month's Inversion Uncertainty: Is Alliance Boots Really Acquiring Walgreens?

Walgreens responded to the news story with a surprisingly vague statement about its plans. Hmmm. Is management buying time, or seriously considering a move? Read on for details over controversy.

As a reminder, tax inversion describes a company’s moving its headquarters from a high-tax nation to a low-tax nation. For example, an inversion could relocate the post-2015 Walgreen-Alliance Boots organization from the U.S. to Switzerland. The Tax Foundation provides a slightly dated, but lucid, summary in Corporate Inversions: An Introduction to the Issue and FAQ.

Here’s what the Financial Times said:
“At a private meeting in Paris on Friday, investors owning close to 5 per cent of Walgreens' shares lobbied the company's management to use its $16bn takeover of Swiss-based Alliance Boots to re-domicile its tax base…The investor group, which included Goldman Sachs Investment Partners and hedge funds Jana Partners, Corvex and Och-Ziff, requested the meeting after becoming frustrated by Walgreens' refusal to consider relocating, according to people familiar with the matter.”
The frustration comes from President and CEO Greg Wasson’s emphatic rejection of inversion. See his comments in Inversion Uncertainty: Is Alliance Boots Really Acquiring Walgreens?

Investors reportedly also had an unpleasant message for Walgreens management team:
“As well as pushing the executives to consider an inversion, the shareholder group told Messrs Wasson and Pessina that they wanted to see a greater role for Boots' management team in running the merged business.” (emphasis added)

Crain’s Chicago Business, Walgreens’ hometown business paper, was more direct, asking: Is Wasson losing control of Walgreen?  The article quotes Walgreens as saying:
“Our focus is always on analyzing and doing what is in the best long-term interest of our company and its shareholders. When we have something more definitive to announce about our future structure and strategies, we will do so.”
So, is Walgreens' management seriously considering inversion? Hard to tell, but this is a much more conciliatory statement than saying "never."

The anti-inversion argument is straightforward: political pressure will keep Walgreens headquarted in the U.S. But as I told Crain’s:
"When Walgreens talks about the best interests of their shareholders, they're talking about Stefano Pessina," Mr. Fein says. "I don't know if Walgreens did or did not anticipate his influence, but they've negotiated a transaction with one of the most sophisticated and respected businessmen in the world."
Stay tuned. This will get MUCH more interesting.

1 comment:

  1. Adam:

    Excellent analysis of Walgreens/Alliance Boots conveniently planned "Paris" meeting with its financiers.
    I think the question on "future strategies and structures" ref. to Walgreens statement, in which Boots latest comment was this is a "Walgreens issue", shows a more focused agenda than was presented in the article on Walgreens Inversion meeting.
    Any new developments from the 340b Congressional inquire?
    Thank You