Under growing political pressure and stockholder objections, Walgreen Co. has decided to scrap plans to legally restructure as a Swiss company. The drugstore chain will still acquire the part of Switzerland-based pharmacy retailer Alliance Boots it doesn't already own, but it won't reincorporate overseas to lower its tax rate. Its headquarters will remain in the Chicago suburb of Deerfield.
Companies which engage in this overseas restructuring, called corporate inversion, look to slash their U.S. tax burden while maintaining the benefits of being based stateside. The move would have cost the U.S. economy and estimated $20 billion in the next 10 years, according the White House.
Political pressure came from the White House on down, from President Barack Obama to particularly Democrats led by U.S. Sen. Dick Durbin of Illinois.
"That is great news for America," Durbin said, while standing in front of a Walgreens in downtown Chicago Tuesday evening. "There are customers across America and across Illinois who have been loyal to Walgreens for their entire lives and they believe Walgreens should belong in the United States."
Walgreen said in a statement Wednesday morning: "The company also was mindful of the ongoing public reaction to a potential inversion and Walgreen's unique role as an iconic American consumer retail company with a major portion of its revenues derived from government-funded reimbursement programs," a reference to what the company derives from the U.S. government via Medicare and Medicaid payments, more than a third of its revenue.
It wasn't just bad optics that impelled the drugstore chain to do an about face. The U.S. Treasury began reviewing administrative actions it can take to limit American companies' ability to initiate a corporate inversion, a development that could inevitably create more trouble than it's worth for companies looking to do a tax dodge.
"Inversions are complicated and require a tremendous amount of work, especially if it might then be completely destroyed by changes in regulation," an equity analyst said.
Shareholders also raised objections, worried an inversion move would make it more difficult for investors to hold a company or its officers and directors legally accountable in the event of wrongdoing. Many jurisdictions outside of the United States have much weaker shareholder rights, often limiting the ability to file suit over corporate malfeasance.
Additionally, reincorporation outside the U.S. carries the risk of removal from the S&P 500 and other stock indices which can affect a company’s stock price.
But this may not be the last word. One analyst noted that Walgreens' decision to stay in Deerfield now doesn't mean its headquarters will remain there forever.
Walgreens has been based in the Chicago area since 1901 and is the nation's largest drug chain.