Corporate inversion: Walgreens plans move to Switzerland to escape U.S. taxes
A large US pension adviser has written to US regulators asking them to investigate Illinois-based retailer Walgreens plans to move its tax base from the US to Switzerland as part of its takeover of Alliance Boots.
The CtW Investment Group, which represents union pension funds holding $250bn (£146bn) in investments, has written to the Securities and Exchange Commission (SEC) asking them to investigate an apparent violation of a rule designed to prevent disclosure of material inside information to favoured groups.
According to the complaint, Walgreens executives held private meetings with analysts and hedge funds in which they discussed potentially restructuring the company’s planned Alliance Boots acquisition to allow for a so-called tax inversion that would allow it to move its headquarters and escape the US’s far higher corporate tax rate.
Walgreen is reportedly considering the inversion to lower its tax rate in a move that Barclays analysts have estimated would save the company $783m in the first year after the inversion. The move comes amid a growing political row over inversions in Washington sparked by drug firm Pfizer’s ultimately unsuccessful bid for the UK’s AstraZeneca and AbbVie’s current bid for the UK’s Shire.
CtW’s complaint focuses on two off-the-record meetings, one held in February and one in April, at which the Financial Times reported Walgreens management held “constructive” talks with hedge funds and analysts about the possibility of renegotiating the acquisition of Alliance Boots to allow for a tax inversion. Walgreen’s stock price rose significantly afterwards.
“We are deeply troubled that Walgreens may have put the vast majority of its investors at a disadvantage while positioning influential hedge funds to profit from material, non-public information,” said Michael Pryce-Jones, senior governance researcher at the CtW Investment Group. “The issues described in the complaint raise broader concerns about management’s accountability to shareholders at a time when a major strategic transformation is on the table.”
In a conference call in March, Walgreens chief executive, Greg Wasson, said the company had no plans for an inversion. It was not until 30 April that the company said it was considering an inversion. CtW argues the SEC’s “Regulation FD” rules require prompt public disclosure when material inside information is shared privately, whether on purpose or by mistake.
“As we have previously said, we seek to engage directly with as many of our shareholders as possible, regardless of their ownership level or financial position, to hear their important views and opinions, and, at the same time, ensure that all pertinent information regarding Walgreens is broadly disclosed and disseminated on a timely basis to the marketplace and all of our shareholders. In fact, we have met in the past with representatives from Change to Win to hear their views as well. While we may not always reach the same conclusions, we value and carefully consider the input of all shareholders,” said a Walgreens spokesman.
The complaint comes as senator Ron Wyden, chairman of the Senate finance committee, has signalled he wants to take “short-term steps” to battle inversion as the US looks for a larger reform of its tax code.