Investors punish Walgreen for not avoiding taxes

Shares of the drugstore chain fall 14% after it says it will not leave the U.S. to gain a tax advantage.

By MSN Money Partner Aug 6, 2014 2:01PM
Credit: © Rick Wilking/Reuters

Caption: The Walgreens sign at an outlet in Westminster, Colo.By Aimee Picchi, CBS MoneyWatch

When it comes to buying American, Walgreen (WAG) customers can continue waving their stars and stripes.

That's because the largest U.S. drugstore said it won't take advantage of a tax strategy known as an inversion, an increasingly common ploy that helps multinational companies reduce their tax burdens.

Walgreen had been pondering whether to take advantage of the strategy, which would have made it one of the best-known consumer brands to shift its headquarters overseas in order to pursue lower taxes. The move would have cost Americans $4 billion in lost tax revenue over five years, according to advocacy group Americans for Tax Fairness.

Tax inversions are orchestrated when an American company merges with a foreign firm and shifts its headquarters overseas, allowing it to bypass some U.S. taxes. It's become a hot-button topic on Wall Street and Capitol Hill, given the fact that the technique may result in a loss of $20 billion in taxes over the next decade, according to a study from the Joint Committee on Taxation.

But Walgreen's decision to stay put in the U.S. reveals a split between the expectations of American consumers, some of whom view tax inversions as unpatriotic, versus shareholders, who want companies to act in their best financial interest.

Shares of Walgreen slipped about 14 percent in midday trading on Wednesday, after the company disclosed its decision and plans to buy the remaining stake in the British pharmacy chain Alliance Boots that it doesn't already own. It should be noted that a company's stock sometimes declines after announcing an acquisition.

"The company concluded it was not in the best long-term interest of our shareholders to attempt to re-domicile outside the U.S.," Walgreen chief executive Greg Wasson said in the statement.

The decision comes after increasing concern in the Obama administration about the strategy, with Treasury Secretary Jacob Lew calling the ploy a corporate effort "to avoid paying their fair share of taxes."

On top of that, the Obama administration is considering ways to end the tax benefit, effectively curtailing the economic incentive of shifting corporate headquarters overseas, The New York Times reported on Tuesday.

Walgreen cited "ongoing public reaction" as a reason it ruled against the strategy, given its "unique role as an iconic American consumer retail company." It added that the original option transaction would not have qualified for an inversion under current rules.

Of course, there's the chance that Walgreens may be an anomaly, rather than a new trend. For one, it relies on the goodwill of consumers for sales, and the potential tax inversion had led to rumblings of a boycott.

Among the 76 U.S. corporations that have moved their tax domiciles out of the country since 1983, most are hardly household names. Take Foster Wheeler or Noble Drilling Services. While both companies may be well known within their industries, these are businesses that don't rely on positive brand perceptions with the average consumer. (Foster Wheeler moved to Bermuda in 2001, while Noble Drilling moved to the Cayman Islands in 2002.)

Given the financial incentives for U.S. companies to make the trip overseas, the strategy is likely far from played out.

More from CBS MoneyWatch

Tags: WAG
Aug 6, 2014 4:01PM

Wow...Walgreen's is acting responsible! I'll be taking my business there. Investors should see this a positive thing; they shouldn't be having a cow over this.

Now - we just need to work on clearing out Congress and starting over with 'fresh blood' who will begin handling our taxes in a more responsible manner.

Aug 6, 2014 3:47PM
This is an example of a corporation calculating the actual dollar amount  "Goodwill"  is worth as it translates to sales versus the short term grubbing by Wall Street traders. Consumers  have a much longer memory  than traders and will patronize businesses for the rest of their lives based on that Goodwill. It's hard to put a dollar value on word of mouth and Goodwill but it seems Walgreens has done that. I commend Walgreens for having the foresight to look at the long term business model and not cave in to short term greed that will cost them sales and lead to their eventual demise.
Aug 6, 2014 4:02PM
peanuts compared to what the american consumer would have done to them had they moved off shore to avoid u.s. taxes
Aug 6, 2014 4:24PM

We need better tax incentives to keep companies here. Our taxes are not spent wisely,look at what it cost us on STUPID EXPENSES in AFGHANISTAN. We need to stop giving our TAX DOLLARS to foreign countries .

Keep our money here and help our own people.


Aug 6, 2014 4:32PM

Let me get this straight;


Obama and the Treasury Secretary (Jacob Lew) are complaining that a company is avoiding paying thier fair share of taxes! REALLY!!


How about your boys @GE? How much are they paying?


How about the +50% of individuals who don't pay taxes (yet recieve a tax return every year)?


DAMN Gov't Beaurecrats!!!!

Aug 6, 2014 4:28PM
i hope it works out in the long run.  investors are douch-bags in this country.  it's all about the money.  it's nice to see someone tell them to stick it.  i will now shop at wal-greens for items i can get there.    as to you a-holes that think it's ok to offshore,   screw you.  if you want true tax reform in this country eleminate all subsidies, and loop holes and create a flat corporate tax,  period.    that of course will never happen as every politician has a hand out and is payed off to continue with the status quo.  the republicans are especially in the pockets of corporate america.  screw the worker and return nothing to the people and country that allows you to exist.      
Aug 6, 2014 2:42PM
Consumers would have punished them even more if they left.
I was leaving WG until this decision. Today's stock drop is a momentary temper-tantrum. It will level off.
Aug 6, 2014 4:49PM
I find it rather interesting that people who rail on corporations about what they do or don't pay in taxes are really misguided.  Corporations pass along any expense (including taxes) that the market will bear.  Who do they pass them on to you say?  You guessed it.  All of us - including the numnuts that are complaining.  They're getting screwed, and they don't even know it.
Aug 6, 2014 3:05PM
Thats great, instead of being rewarded for being good corporate citizens, they are punished for not being devious enough. Yeah I know it's all 'legal' but if all these corporations paid their fair share of taxes this economy would, in general, be in a whole lot better condition then it is and has been.
Aug 6, 2014 4:41PM
This whole episode is just a reminder that US corporate tax law is way behind the rest of the world.  Lower taxes across the board, and watch the ensuing onslaught of prosperity commence.  You'd think the country that perfected capitalism would lead in this endeavor, but no, idiot thinking in Washington (read Democrats) keeps a stranglehold on prosperity.
Aug 6, 2014 2:33PM

The "misnomer", they are not Investors, but instead Traders ( and I will spell it better, TRAITORS).

Walgreens is doing a "good thing" for Americans...

At the corner of "Healthy and Happy.."

Aug 6, 2014 4:40PM
Why don't investors 'punish' US corporations that offshored American jobs? No. You f***ers jumped on it and bought stock because now they are 'more profitable.'  Profit, profit, profit no matter the cost, right boys?
Aug 6, 2014 4:38PM
Isn't it telling, on the one hand, to see so many Americans rally for Walgreens after its decision to stay based in the U.S., while Wall Street punishes the company for doing just that. Do you get the impression that often what is good for Wall Street is bad for America? The big guys on Wall Street really don't give a hoot about Main Street. Their obsession with money and greed is distressing. Let's OCCUPY WALL STREET, before they totally occupy US.
Aug 6, 2014 7:41PM

DELMAR F.....Not really sure where you are coming from with some of your ideology.??

You mention that I trade or sell and buy stocks..Yes that is true, many self directed investors do.

I have no problem with that kind of trading, happens EVERYDAY...

But Mom & Pop investors, even 401 purchases and sales don't...cause something as this.

Most of that type of investing is not out to destroy a stock price or a Company's valuation.

That is just an idiotic assumption...!!!

When you have HFT trading platforms, unscrupulous Traders, and Hedge fund Managers acting in "unison", the price of a stock can be driven into an "unfair territory". More or less beaten down for no other reason then to make "some dirty money" and or profits.

The only people hurt today were, Walgreen employees, Investors like myself and thousands of others, 401 and IRA holders, some getting ready for retirement, etc, etc...

I want "no part" in the destruction of value in a "good Company".

We will see what happens over the next few days, with share price and volume; Then you might have an answer and hopefully we will have a fair return to value...We'll see. 

From what some I've read WAG would not be saving enough in taxes to abandon the U.S. as it's headquarters....I believe they are doing the right thing, and acting Patriotically....

Aug 6, 2014 6:04PM

If any company founded in this country and moves its head quarters over seas they should be considered as if in the U.S. No different then if American build an embassy over seas it is still considered U.S Property. Pay your Taxes.


If any physical building located In the U.S. all revenue should be taxed due to the fact that they barrow money from the U.S to build the Buildings.

Aug 6, 2014 5:39PM
Most of the people commenting on this thread really do not understand market forces.  They are commenting purely based on personal emotion, and they are not thinking rationally about what does or doesn't move the market.  The stock market is not composed solely of the upper 1%.  My guess is that the same people belly-aching hold Walgreens stock in their 401Ks, and it got hammered today.
Aug 6, 2014 10:27PM
So Obama calls enterprises, owned by investors that actually invest their saved money, that want to cut their socialists dues unpatriotic while he fails to enforce the US Constitution and immigration laws. Obama's a fool, hypocrite and liar.
Aug 6, 2014 7:33PM
So Obama sponsors Delphi moving their tax address off shore to facilitate the GM bailouts and pad the pockets of UAW but it's different if investors of capital want some return instead of the zero rate the socialist FED has set to bail out the TBTF banks and home owners that commit mortgage fraud. The POTUS is a socialist along with his Democratic party idiots.
Aug 6, 2014 2:30PM
They caved. We will never get tax reform if the big companies cave in to the socialist.
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