* Walgreen to buy remaining 55 pct of Alliance Boots
* Combined firm has more than 11,000 stores in 10 countries
* Tax "inversion" deals under pressure; Obama seeks action
* Walgreen says inversion deal not in interests of investors
* Plans $1 bln savings by fiscal 2017, share buyback
(Adds comments from Obama)
By Emma Thomasson and Sruthi Ramakrishnan
Aug 6 U.S. retailer Walgreen Co said it
would not use a full takeover of Europe's biggest pharmacy
chain, Alliance Boots, to move its domicile overseas,
following fierce criticism of such tax-cutting deals at home.
Walgreen will buy the 55 percent it does not already own of
Alliance Boots for 3.13 billion pounds ($5.3 billion) in cash
and 144.3 million shares, giving a total deal of about $15
Walgreen shares fell as much as 16 percent to $58.30 on
The U.S. group said the combined company, with more than
11,000 stores in 10 countries, would keep its tax domicile in
the United States, with headquarters in the Chicago area. It is
targeting combined revenue for 2016 of $126-130 billion.
Walgreen's retreat is the third major possible tax
"inversion" deal to collapse in recent months amid heightened
political sensitivity in the United States to such transactions.
President Barack Obama told reporters on Wednesday that his
administration plans to move quickly on measures to discourage
the use of inversions.
"We don't want to see this trend grow," Obama said at a news
conference, not specifically mentioning Walgreen, which is based
in his home state of Illinois.
"That kind of herd mentality is something we want to avoid,
so we want to move quickly, as quickly as possible," Obama said.
Walgreen had been under pressure from investors to shift its
tax domicile to Switzerland or Britain as part of the buyout.
The pharmacy chain said it was mindful of the public
reaction to a potential inversion deal and its role as an
"iconic American consumer retail company with a major portion of
its revenues derived from government-funded reimbursement
"The company concluded it was not in the best long-term
interest of our shareholders to attempt to re-domicile outside
the U.S.," CEO Greg Wasson said in a statement.
He said the company could not find a structure it was sure
could withstand extensive scrutiny from U.S. tax authorities.
Wasson will be chief executive of the combined company, to
be named Walgreens Boots Alliance Inc. Alliance Boots Executive
Chairman Stefano Pessina will be its executive vice-chairman,
responsible for strategy and M&A for the combined company.
"Pessina will be integral to solidifying the combined
company's position as the big beast in the global drugstore
space," said Kelly Tackett, U.S. director of research at retail
analytics firm Planet Retail.
"We fully expect more acquisitions to follow, with shoring
up its presence in Latin America likely to be first on the
agenda," Tackett said.
Following Walgreen's acquisition of 45 percent of Alliance
Boots in 2012, Pessina gained an about 8 percent stake in the
U.S. company, making him the largest shareholder.
He is expected to remain the largest shareholder in the
combined company after the deal closes in 2015, an Alliance
Boots spokeswoman said on Wednesday.
After news leaked on Tuesday that Walgreen would not do an
inversion deal, shares in the company fell 4.4 percent in
regular trading to close at $69.12. Goldman Sachs and Lazard are
advising Walgreen on the transaction.
In an inversion, a U.S. corporation buys or sets up a
foreign company and then moves its tax domicile to that foreign
company and its home country, while leaving core business
operations in the United States.
Doing such a deal ends U.S. taxation of the company's
foreign profits and makes it easier for the company to take
other tax-cutting steps.
Senator Richard Durbin, the senior U.S. senator from
Walgreen's home state who is personally close to Obama, had
publicly urged the company not to go through with an inversion.
Walgreen announced a new forecast for adjusted earnings per
share (EPS) of $4.25-$4.60 for the fiscal year ending August
2016, taking into account lower pharmacy reimbursements and a
rapid rise in drug prices.
The company also said it expects to achieve $1 billion in
savings by the end of fiscal 2017, including corporate, field
and store-level cuts. It said it planned a new $3 billion share
Walgreen expects to close the transaction in the first
quarter of 2015, it said.
A consortium led by billionaire Pessina and private equity
group Kohlberg Kravis Roberts & Co. L.P. (KKR) took Alliance
Boots, which runs the Boots chain of pharmacies that dot main
streets across Britain, private in 2007.
Alliance Boots has itself come under attack in the UK for
schemes to cut its tax bill, with a charity and a labor union
accusing the firm last year of avoiding over 1.1 billion pounds
($1.9 billion) in UK tax since 2008.
Alliance Boots responded by saying it conducts its business
and organises its tax affairs strictly in compliance with all
applicable law and observes the highest standard of good ethics.
Nine inversion deals have been agreed to this year by U.S.
companies ranging from banana distributor Chiquita Brands
International Inc to drugmaker AbbVie Inc, and
more are being considered. The transactions are occurring at a
record pace since the first inversion three decades ago.
But two large inversions recently collapsed: one involved
U.S. drugmaker Pfizer Inc ; and the other, U.S.
advertising company Omnicom Group Inc. Both had targeted
European rivals for acquisition, with a tax domicile move abroad
included in their plans, but the deals unraveled.
(1 US dollar = 0.5940 British pound)
(Additional reporting by Siddharth Cavale in Bangalore and
Roberta Rampton in Washington; Editing by Mark Potter and Ken