Despite majority of its exposure gained in the U.S., leading
) has been pressurized by an influential group of its investors
) and hedge funds Jana Partners, Corvex and Och-Ziff to relocate
itself to Europe, according to a Financial Times article. Per the
source, following Walgreens' initial refusal to consider
relocation, these investors requested the Chicago-based retail
pharmacy chain to reconsider the whole matter as a strategy to
reduce its corporate tax burden.
According to these investors who own almost 5% stake in
Walgreens, this tactic, known as tax inversion, will be
beneficial for Walgreens in drastically reducing its taxable
income which it has to pay in the U.S. - a country with one of
the top corporate tax rates in the world. They requested
Walgreens to use its impending $16 billion acquisition of
Switzerland-based pharmacy-led health and beauty group Alliance
Boots GmbH to re-domicile its tax base in Europe.
Notably, in Aug 2012, Walgreens acquired a 45% equity interest
in Alliance Boots GmbH for $6.7 billion and is expected to
purchase the remaining 55% over a six-month period beginning Feb
2, 2015 for an approximate value of $9.5 billion in cash and
According to the source, last month, analysts at UBS noted
that while the corporate tax rate for Walgreens was as high as
37.5%, the same was a mere 20% for Alliance Boots. As a result,
with application of the inversion strategy, Walgreens may be able
to increase its earnings per share by 75%.
However, from Walgreens' point of view, the decision may not
remain as easy as it seems, taking into consideration the
political pressure it would face while relocating.
In the last reported quarter, Walgreens opened/acquired 28
stores. As of Feb 28, 2014, the company operated in 8,681
locations in 50 states, the District of Columbia, Puerto Rico and
Guam and the U.S. Virgin Islands, including 8,210 drugstores (138
more compared with the year-ago period). The company also
operates worksite health and wellness centers, infusion and
respiratory service facilities, specialty pharmacies, mail
service facilities, e-commerce business and Take Care Health
Walgreens currently has a Zacks Rank #3 (Hold). While we
choose to remain on the sidelines regarding WAG at present, drug
Rite Aid Corp.
CVS Caremark Corp.
) are worth considering. While Rite Aid holds a Zacks Rank #1
(Strong Buy), CVS Caremark carries a Zacks Rank #2 (Buy).
CVS CAREMARK CP (CVS): Free Stock Analysis
GOLDMAN SACHS (GS): Free Stock Analysis
RITE AID CORP (RAD): Free Stock Analysis
WALGREEN CO (WAG): Free Stock Analysis Report
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