The US pharmacy giant Walgreens’ decision not to move its tax base overseas in its takeover of Alliance Boots saw $10bn wiped from its stock market value as investors reacted with dismay. The slide in Walgreens’ value precisely matched the total price of the Boots takeover.
Walgreens’ bosses insisted that staying in the US was the right decision because of potential tax investigations by US authorities and an expected consumer backlash which has hit other firms moving their tax domicile to cheaper locations like the UK. But investors were unimpressed and shares tanked 16 per cent.
Yesterday’s completion of the deal sees Alliance Boots’ boss Stefano Pessina take home a staggering £3bn after buying Boots in a highly leveraged takeover in 2007. Along with private equity owners KKR, he invested £1.25bn four years ago.
The 73-year-old will remain heavily involved with the running of the new company Walgreens Boots Alliance, becoming the biggest shareholder and executive vice-president responsible for strategy and future takeovers.
Yesterday’s deal sees Walgreens snap up the 55 per cent of Alliance it did not already own for £6bn, with around half being used to pay down debts and the remainder paid out in cash to KKR and in shares to Mr Pessina. Both shared about £2.5bn when the first 45 per cent was sold in 2012 for £4.3bn.
Alliance Boots’ £5bn debt will go into the new company.
Several senior Alliance Boots staff will take management roles at the new company, including former Boots UK boss Alex Gourlay becoming president of Walgreens. Mr Pessina’s long-term partner Ornella Barra, previously head of wholesale and brands for Alliance Boots, takes on the same responsibilities for the entire group.
Walgreens’ boss Greg Wasson, who becomes group CEO, started his new job by fending off criticism for not moving overseas, despite pressure from shareholders. He said: “We undertook an extensive and rigorous analysis with a team of leading experts to determine the most optimal – and sustainable – action.” However he admitted: “We considered benefits such as substantial financial advantages … but it potentially put the company at risk [including] protracted controversy with the IRS and potential litigation.”
He also warned of the “potential consumer backlash and political ramifications”.
US healthcare and pharmaceutical firms such as Mylan and AbbVie have bought all or parts of European businesses in recent weeks to avoid US taxes, while a similar deal by Pfizer to buy AstraZeneca would have seen the Viagra maker move to the UK before the deal collapsed.
Walgreens Boots Alliance said it has found $1bn cost savings from the combined business although Mr Pessina warned not to expect growth for at least a year.
Walgreens and other pharmacy businesses have struggled to cope with falling margins in the drugs business.