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 Walgreen said it would exercise an option to buy the 55 percent it
does not already own of Alliance Boots for 3.13 billion pounds ($5.3
billion) in cash and 144.3 million shares, giving a total value for
the deal of about $15 billion. It took a 45 percent stake in 2012
and was expected to buy the rest.
The U.S. group added the combined company, with more than 11,000
stores in 10 countries, would keep its tax domicile in the United
States, with headquarters in the Chicago area. It is targeting
combined revenue for 2016 of $126-130 billion.
Walgreen's retreat is the third major possible tax "inversion" deal
to collapse in recent months amid heightened political sensitivity
in the United States to such transactions.
Walgreen had been under pressure from investors to shift its tax
domicile to Switzerland or Britain as part of a buyout of Alliance
Boots, but the administration of President Barack Obama said on
Tuesday it was considering steps to curb such deals.
Walgreen said it was mindful of the public reaction to a potential
inversion deal and its role as an "iconic American consumer retail
company with a major portion of its revenues derived from
government-funded reimbursement programs".
"The company concluded it was not in the best long-term interest of
our shareholders to attempt to re-domicile outside the U.S.," CEO
Greg Wasson said in a statement, adding it could not find a
structure it was sure could withstand extensive scrutiny from the
U.S. tax authorities.
Walgreen shares were down nearly 10 percent at $62.50 in premarket
trading. After news leaked on Tuesday that the group would not do an
inversion deal, shares in the company fell 4.4 percent in regular
trading to end at $69.12. Goldman Sachs and Lazard are advising
Walgreen on the transaction.
In an inversion, a U.S. 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.
PATRIOTIC CUSTOMERS
Senator Richard Durbin, the senior U.S. senator from Walgreen's home
state who is personally close to Obama, had publicly urged the
company not to go through with an inversion. Obama himself formerly
was a senator for Illinois.
"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 Wasson in July.
Walgreen announced a new goal for adjusted earnings per share (EPS)
for fiscal 2016 of $4.25-$4.60 and said it was accelerating cost
reduction initiatives to achieve $1 billion in savings by the end of
fiscal 2017, including corporate, field and store-level cuts.
It also said it planned a new $3 billion share repurchase program.
[to top of second column] |
Walgreen, which expects to close the transaction in the first
quarter of 2015, will blend senior management from both companies,
with Wasson to be president and CEO and Alliance Boots executive
chairman Stefano Pessina to become executive vice chairman,
responsible for strategy and mergers and acquisitions.
ALLIANCE BOOTS ALSO IN TAX ROW IN UK
A consortium led by billionaire Pessina and private equity group
Kohlberg Kravis Roberts & Co. L.P. (KKR) took Alliance Boots, which
runs the Boots chain of pharmacies that dot main streets across
Britain, private in 2007.
Alliance Boots has itself come under attack in the UK for schemes to
cut its tax bill, with a charity and a labor union accusing the firm
last year of avoiding over 1.1 billion pounds ($1.9 billion) in UK
tax since 2008.
Alliance Boots responded by saying it conducts its business and
organizes its tax affairs strictly in compliance with all applicable
law and observes the highest standard of good ethics.
The Obama administration said on Tuesday it was considering
administrative actions to discourage inversions, though there are
limits to what the Treasury can do without action by Congress.
Nine inversion deals have been agreed to this year by U.S. companies
ranging from banana distributor Chiquita Brands International Inc <CQB.N>
to drugmaker AbbVie Inc <ABBV.N> and more are being considered. The
transactions are occurring at a record pace since the first
inversion three decades ago.
But two large inversions recently collapsed: one involved U.S.
drugmaker Pfizer Inc <PFE.N>; and the other, U.S. advertising
company Omnicom Group Inc <OMC.N>. Both had targeted European rivals
for acquisition, with a tax domicile move abroad included in their
plans, but the deals unraveled.
(1 US dollar = 0.5940 British pound)
(Additional reporting by Siddharth Cavale; Editing by Mark Potter)
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