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Walgreen turns down inversion to cut tax bill

Published on NewsOK Modified: August 6, 2014 at 4:03 pm •  Published: August 6, 2014
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It ultimately decided against an inversion because the company wasn't convinced the deal would pass IRS scrutiny. Walgreen didn't design the acquisition as an inversion, so it would have to change key elements of it, including possibly the terms, to avoid IRS challenges that it was abusing the tax code.

An IRS fight could have led to a long legal battle and back taxes with penalties if the company lost, Walgreen officials told analysts during a Wednesday morning conference call.

Plus, the company had no assurances that tax code wouldn't eventually be changed to remove some of the advantages companies get from inversions, spokesman Michael Polzin noted.

Additionally, Illinois Sen. Dick Durbin had sent a letter to Walgreen CEO Greg Wasson urging him to reconsider an inversion and warning that the company may find its customers are "deeply patriotic and will not support Walgreen's decision to turn its back on the United States."

Walgreen deals directly with consumers more than other companies — like drugmakers — that have tried inversions. So, Walgreen would be more sensitive to public reaction.

At the same time, companies face growing political pushback. The Obama administration has urged Congress to act swiftly to curtail inversions, and Democrats in both the House and Senate have introduced bills to rein in the practice. But the election year push is unlikely to succeed in a divided Congress, where Republicans favor more comprehensive tax reform.

Companies may pause their inversion plans to see how Congress reacts, tax lawyer Bret Wells said. But he said anything short of comprehensive tax reform won't stop them from then adjusting their plans and continuing to pursue inversions.

"As long as the financial benefits stay in place, companies are going to go after them," said Wells, an assistant law professor at the University of Houston.

Walgreen shares sank more than 14 percent, or $9.92, to $59.20 on Wednesday, after the drugstore chain announced its decision.

The company's stock had advanced more than 20 percent so far this year, as of Tuesday, and set several new all-time high prices. The most recent came on June 19, when the shares hit $76.39.