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.
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
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.
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.
GET OUT AND VOTE THE BUMS OUT.
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!!!!
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.."
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....
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.
Copyright © 2014 Microsoft. All rights reserved.
The expected $3.36 billion offering from Citizens Financial Group won't come close to Alibaba's, but it will be an important one for the market.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.