James F. McDonough
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Walgreens urged to undergo tax "inversion"
Author: James F. McDonough
Date: April 30, 2014
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Walgreens, a staple U.S. drugstore, has been headquartered in Illinois for almost a century. The company got its start in downstate Dixon, Ill., before moving its corporate headquarters to Chicago and then eventually to Deerfield, Ill., according to the Chicago Tribune. The company’s next corporate move may take it further away – to Bern, Switzerland.
A group of influential shareholders, including Goldman Sachs Investment Partners and hedge funds Jana Partners, Corvex and Och-Ziff, are reportedly pressuring the company to undergo a so-called “inversion,” according to the Financial Times. This move would allow Walgreens to relocate to Switzerland, paying a dramatically lower corporate income tax rate. The corporate income tax in the U.S. is among the highest in the world – a factor that has prompted a number of companies in the public eye to redomicile their headquarters abroad.
Analysts at UBS found that Walgreens’ tax rate was anticipated to be 37.5 percent this year, according to the news source. This is considerably higher than the tax rate for Alliance Boots, a formerly UK-based pharmacy chain of which Walgreens recently acquired 45 percent. Boots is anticipated to pay a tax rate of only 20 percent as a result of having made such an inversion a few years ago.
UBS explained in a note last month that Walgreens could increase earnings per share by 75 percent by undergoing an inversion, the news source explained. The finance group noted, however, that “Walgreens’ management seems more hesitant to pull the trigger near-term due to perceived political risks.”
Many think that Walgreens is right to be concerned about political risk, particularly because of recent attention paid to corporate tax in the U.S. and the face-to-face nature of the company’s interactions with the public. Inversions have become very popular in the last two years, FT explained, especially in the pharmaceutical sector.
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