By Ed Hammond in New York
Walgreens has come under pressure from an influential group of its shareholders, who want the US pharmacy chain to consider relocating to Europe, in what would be one of the largest tax inversions ever attempted.
Editor’s Note: Exporting patients and companies seems to make economic sense these days.
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 move, known as an inversion, would dramatically reduce Walgreens’ taxable income in the US, which has among the highest corporate tax rates in the world.
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.
In a note last month, analysts at UBS said Walgreens’ tax rate was expected to be 37.5 per cent compared with 20 per cent for Boots, and that an inversion could increase earnings per share by 75 per cent. They added, however, that “Walgreens’ management seems more hesitant to pull the trigger near-term due to perceived political risks.”
Friday’s meeting was attended by Greg Wasson and Wade Miquelon, Walgreens’ chief executive and chief financial officer, respectively, and Stefano Pessina, the Italian billionaire chairman of Alliance Boots.
The discussions, held at the Four Seasons hotel in the city’s upscale 8th arrondissement, were “constructive”, according to two people with knowledge of the meeting.
Existing rules mean that a US company can forgo its domestic tax status through a deal that transfers more than 20 per cent of its shares to foreign owners.
A tax inversion by Walgreens would be likely to face strong political resistance in the US, where the practice has become increasingly popular during the past two years, particularly in the pharmaceutical sector.
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.
Illinois-based Walgreens acquired 45 per cent of Boots for $6.5bn in cash and shares in 2012, with an option to buy the remaining 55 per cent next year for $9.5bn. The combined business would have sales of $110bn, based on 2013 figures.
Alliance Boots has been criticised by tax protest groups, including UK Uncut, over claims that it had reduced its tax bill since being taken private by Mr Pessina and private equity group Kohlberg Kravis Roberts in a £12bn deal in 2007.
Walgreens and Alliance Boots both declined to comment.
Additional reporting by Caroline Binham in London