US taxes put pressure on drug chain Walgreen to migrate to Europe

Walgreen Co, the largest US drugstore chain, is under pressure from a shareholder group to move its headquarters to Europe, where it owns nearly half of Swiss-based pharmacy giant Alliance Boots.

Though economic globalisation is commonly associated with the overseas movement of factories, a small but increasing number of corporations had relocated headquarters to Europe to escape the 35 per cent tax on US profits.

Financial services and HR firm Aon Corp, one of Chicago's most prominent businesses, moved its corporate home to London in 2012, while last month Deerfield-based Horizon Pharma Inc revealed plans to move its headquarters to Ireland as part of a merger.

Though the move would make eminent financial sense for Walgreen and its investors, the decision came with a political risk for a company as high profile as the pharmacy chain, said analysts yesterday after news leaked that Walgreen and investors discussed the possibility.

Walgreen is integral to the US health care system, dispensing drugs to millions of consumers through its stores numbering over 8,000. A substantial part of its $72 billion in annual sales comes from Medicare, the federal government's insurance programme for the elderly.

The company could end up as an easy target for politicians and a public keenly aware of issues of fairness and income equality, in the event it sought to shift profits overseas to avoid paying US taxes.

Chicago Tribune quoted Andrew Wolf, an analyst with BB&T Capital Markets as saying it was hard to imagine a company with the majority of its business in the US not being headquartered in the US. He added, if Walgreen were to move now, the political fallout would be harsh.

Meanwhile, a group owning nearly 5 per cent of the Walgreen shares wants a relocation to Europe to be considered, according to the Financial Times. The relocation would cut Walgreens' taxable income in the US.

According to the Financial Times, following the company's previous refusal to move, the group lobbied management at a private meeting last week in Paris.

The meeting was reportedly attended by Goldman Sachs Investment Partners and hedge funds Jana Partners, Corvex and Och-Ziff, and according to sources who spoke to the publication, talks had been constructive.

The shareholders are pushing for using their stake in Swiss-based Alliance Boots, 45 per cent of which Walgreens acquired in 2012, to change its domicile to Europe.

The tax inversion, as the move is called, could boost earnings per share but according to analysts it could meet political resistance in the US.