Walgreen retreats from plan to move tax domicile abroad

US retailer Walgreen has backed away from a plan to reincorporate abroad to cut its US tax bill, while the Obama administration said it was considering steps to curb such corporate tax domicile-shifting deals.

Walgreen, the operator of the largest US pharmacy chain, will buy the 55 per cent it does not already own of European rival Boots, but the US company will not use the deal to move its tax domicile overseas, said a person familiar with the matter.

Walgreen issued a statement late saying it would announce “several updates” on Boots on Wednesday. The company said the updates would cover “the transaction’s timing and structure.”

Walgreen’s retreat will be the third major possible “inversion” deal involving a major company to collapse in recent months amid controversy, underscoring the complexity and heightened political sensitivity in the United States of these transactions.

Walgreen had been under pressure from investors to do such a deal as part of its buyout of Boots so the US retailer’s tax domicile could be moved to Switzerland or Britain.

But the company also faced criticism from Democratic politicians, including the senior US senator from its home state, Richard Durbin.

"I believe you will find that your customers are deeply patriotic and will not support Walgreen's decision to turn its back on the United States," Durbin wrote to Walgreen CEO Gregory Wasson last month. "Nearly all of your $2.5 billion in profits earned last year were from sales to US taxpaying customers."

In an inversion, a US corporation buys or sets up a foreign company and then moves its tax domicile to that foreign company and its home country, while leaving core business operations in the United States. Doing such a deal ends U.S. taxation of the company’s foreign profits and makes it easier for the company to take other tax-cutting steps.

Walgreen shares ended regular trading on Tuesday at $69.12, down 4.4 per cent.

“Given Walgreen’s physical retail presence in the US we believe Walgreen is somewhat unique relative to recent pharma manufacturer tax inversion deals. Walgreen ability to trim its tax bill may be less substantial relative to other industry tax inversions,” wrote Leerink Partners analysts in a note.

“We believe long-term fundamentals are sound and management will likely also provide updated fiscal 2016 guidance ... which could help offset potential investor disappointment if a tax inversion is abandoned,” they added.

A spokeswoman for Boots declined to comment.

Reuters