By opting out of a so-called tax inversion scheme, Walgreens is going against the wishes of some investors but will reap the benefits of positive consumer sentiment.

After months of speculation on both sides of the pond, Walgreens has revealed that it will not only acquire the remaining 55% of Alliance Boots but retain its headquarters in the US.

By opting out of a so-called tax inversion scheme made possible by the £5bn buyout of the Switzerland-based Alliance Boots, Walgreens is going against the wishes of some large investors but will reap the benefits of positive consumer sentiment in its largest (and home) market.

Walgreens’ decision to maintain headquartered in the US will result in higher corporate taxes. However one wonders how much this was Walgreens’ choice. It is more likely a result of the pharmacy giant facing a backlash against the initiative. Following the initial decision there was uproar from consumers and the US government amid political pressure from the White House and its local Chicago Congressional leadership.

The company was actively considering moving to either Switzerland or the UK to seek tax relief. The relocation would have seen its tax rate (prior to deductions) nearly halved from 37.5% to around 20%. According to analyst reports, the move would have yielded tax savings in the ballpark of £2.4bn over five years.

Instead Walgreens is to create a new holding company called Walgreens Boots Alliance that will be headquartered in the Chicago area. It will be headed by Greg Wasson, the current chief executive of Walgreens.

Wasson said: “Pursuing an inversion was not the right course of action and would have resulted in potential consumer backlash and jeopardising government contracts.”

Walgreens did not want to repeat history. The retailer has previously felt the effect of the fickleness of US consumers on sales. During a dispute over fees paid by Express Scripts, Walgreens exited the pharmacy benefits manager’s network for nine months during 2012. Many were no longer able to receive coverage for their prescription medications from Walgreens pharmacies, prompting many consumers to defect to other retailers.

As Walgreens becomes a more international business, we fully anticipate that more difficult decisions will arise. If, however, management continues to make those decisions with a laser-like focus on the needs of its customers, sometimes at the expense of short-term profits and the displeasure of investors, then long-term growth will surely follow.

  • Sophie Carroll is associate analyst at Planet Retail