Walgreens is set to acquire the remaining 55% of European pharmacy retailer and wholesaler Alliance Boots in an agreement that will keep its corporate tax headquarters in the U.S., despite speculation that the drug store chain would move its headquarters overseas to take advantage of a lower corporate tax rate.
Walgreens Boots Alliance will be based in the Chicago area. The $15.26 billion deal is expected to close by the end of March.
Walgreen met with much public backlash as it was weighing whether to reincorporate in the UK or in Switzerland which, the company told the Chicago Tribune, played a role in its decision to remain in the U.S.
While several U.S. companies have conducted acquisitions to allow them to move their headquarters overseas to lower their corporate tax rate, Walgreens had come under increasing pressure to keep its tax base in the U.S. Last week, the president called corporate inversions an “unpatriotic tax loophole,” and urged Congress to act on legislation to halt this practice, according to the Chicago Tribune.
The new U.S.-based holding company will have four divisions:
•Walgreen, which will continue to be based in Deerfield;
•Boots, which will maintain its headquarters in Nottingham, U.K.;
• Pharmaceutical Wholesale and International Retail; and
• Global Brands.
“Walgreens’ announcement that it will remain U.S.-based following the buyout of Alliance Boots is sure to upset some large investors, but the combined entity will undoubtedly reap the benefits of positive consumer sentiment in its largest (and home) market,” Kelly Tackett, U.S. research director at Planet Retail told CSD in a written statement.
“Notoriously fickle U.S. consumers have more and more options to fulfill their drugstore needs and require little impetus to shift loyalties,” said Tackett, noting the chain not only faces stiff competition from CVS, but from other channels, such as supermarkets and, of course, convenience stores.
“And while the decision to retain its U.S. headquarters suggests an internal power play to retain its US identity and culture, Walgreens has smartly recognized the role Alliance Boots Executive Chairman Stefano Pessina can play as a deal-maker in the international arena. As Chairman of a new strategy committee, Pessina will be integral to solidifying the combined company’s position as the big beast in the global drugstore space. We fully expect more acquisitions to follow, with shoring up its presence in Latin America likely to be first on the agenda,” Tackett said. “As Walgreens becomes a more international business, we fully anticipate more difficult decisions naturally arising. If, however, management continues to make those decisions with a laser-like focus on customer needs, even at the expense of short-term profits and incurring investor displeasure, then long-term growth will surely follow.”