3 Reasons Carl Icahn May Be Seeking a Board Seat at Walgreen Company

Earlier this month rumors that billionaire activist investor Carl Icahn was acquiring a large stake in Walgreen caused the stock to pop higher. While Carl Icahn's name alone typically gets Wall Street and investors excited, his interest in a particular company usually brings about significant change. In this particular instance, there's only three things Carl Icahn would want with Walgreen, and two are great for shareholders.

Just go to Europe!

After a year of speculation that Walgreen would redomicile in Europe for tax inversion reasons, the company announced that it would not be relocating to Switzerland after purchasing the remaining 55% stake of Alliance Boots next year. While fears of political and consumer backlash are largely considered the deciding factor, Walgreen's decision means that its current corporate tax rate will likely remain intact.

So, Carl Icahn, an investor who is known for forcing change to benefit shareholders, might just be seeking a board seat to force the company to make the move. And after all, Walgreen should be looking for ways to save on taxes -- last year, Walgreen paid an income tax of $1.44 billion on more than $4 billion of income before interest and taxes.

In essence, Switzerland would make sense for Walgreen, and Carl Icahn would give the company a business leader with name power to fight anxious politicians that could reason with nervous board members.

Forget Alliance Boots

To acquire 45% of Alliance Boots, Walgreen has already paid $6.7 billion, and to acquire the remaining stake it'll cost the company $10 billion. If Walgreen has no intention of ever moving to Switzerland, then $16.7 billion may seem like too big of a price, especially to an investor like Carl Icahn.

However, this would not be in the best interest of shareholders. For one, Alliance Boots is a solid performing company that grew 4.3% and generated revenue of $32 billion last year.

Also, its net profit increased more than 30% to $1.3 billion. Thus, once absorbed, Alliance Boots will increase Walgreen's revenue and profit by 40% and 50%, and in an era of patent expirations and high-margin generic drugs being introduced to both the U.S. and Europe , Alliance Boots is an asset that can make Walgreen's stock look even more attractive.

Not to mention, once in Europe, Walgreen will have the capabilities to expand additionally or move to Switzerland at any point it wishes. Therefore, persuading against Alliance Boots would not be in the best interest of shareholders.

Give shareholders more

If there's any single reason that Carl Icahn takes a large stake in a company, it is usually to demand larger buybacks and higher dividends. He has done this many times over, and in this particular instance, such action may be necessary with Walgreen's board.

For one, Walgreen's yield of 1.7% lags the S&P 500's index of 1.8%, along with other top retailers like Wal-Mart who pay out a 2.5% annual dividend. Not to mention, Walgreen's recently announced buyback of $3 billion has already been criticized for being too low, and according to Bloomberg, activist hedge fund Jana Partners, who has three board seats, is already pressuring the company to increase the allowance.

While Jana Partners alone may get the job done, adding another activist investor like Carl Icahn couldn't hurt in the attempt to get Walgreen to increase its buyback.

Foolish Thoughts

With all things considered, Carl Icahn would be great for Walgreen, assuming his goal wouldn't be to discourage the Alliance Boots acquisition. Alliance is a company that can open new doors for Walgreen, allow it to grow larger, and perhaps one day become a global company. For investors looking at the big picture, Walgreen looks like a company whose long-term upside is high and that's presenting a good investment opportunity.

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The article 3 Reasons Carl Icahn May Be Seeking a Board Seat at Walgreen Company originally appeared on

Brian Nichols has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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