Walgreen Investor Pressure Is Absurd

A group of investors wants Walgreen to move overseas to dodge U.S. corporate taxes. For a company that earns billions in profit every year, this seems irresponsible.

Apr 15, 2014 at 4:34PM

Big U.S. corporations shuffling their businesses around the world for tax advantages is nothing new or uncommon. With one of the chunkiest corporate tax rates in the Western world, the United States is a pricey place to call home. For a long-held U.S. company to up and leave completely, though, is a different story. Pharmacy giant Walgreen (NASDAQ:WBA) is under pressure to do just that, according to the Financial Times. The move, which is called a tax inversion, would shift more than 20% of shares to foreign owners and avoid U.S. domestic tax status. Management seems hesitant -- and for a good reason.

Not PC
To understate the obvious, moving the $61 billion pharmacy giant outside of the United States for little reason other than to avoid a tax bill would be a political no-no. For one thing, Walgreen earned nearly $2.5 billion in net income during its last reported fiscal year. Last quarter alone, it generated $1.1 billion in cash from operations from its 8,200 core stores. In two years, the stock is up roughly 100%.

There is no way to make the case that Walgreen is hurting.

Yet a group of shareholders representing roughly 5% of the company, including Goldman Sachs and various hedge funds, are reportedly "frustrated" that Walgreen management refused to even consider moving their domicile to Europe. The reason is simple: Earnings per share could increase 75% if the company switched up its tax base. According to a recent investor conference call, the company's U.S. business has an effective rate of 37.5%, while its stake in Alliance Boots (Europe's biggest pharmacy chain) is taxed at 20%.

Can this really be considered ignoring the best interests of shareholders? The backlash here in the U.S. from regulators, not to mention the public, would be tremendous. One of the most successful retailers around would avoid paying taxes while not losing one iota of influence or sales in its core U.S. market.

As investors grow their influence on public businesses and the rise of activist investing becomes a daily battle, the focus of many good companies could easily shift further away from their fundamental purpose. Walgreen has the wind at its back with great prospects in the back-of-store pharmacy and slow-but-steady sales in the front. Of all of the brick-and-mortar retailers out there, Walgreen and its peers are in the top echelon of businesses to own.

This is one instance where investor influence is pushing the company away from progress, and keeping management occupied with factors that will not aid the operating business in the long run.

Cheers to Walgreen CEO Greg Wasson for his "refusal" to consider moving the business overseas -- let's hope the resilience stands.

How to save on your own taxes
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Michael Lewis has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

Something big just happened

I don't know about you, but I always pay attention when one of the best growth investors in the world gives me a stock tip. Motley Fool co-founder David Gardner (whose growth-stock newsletter was rated #1 in the world by The Wall Street Journal)* and his brother, Motley Fool CEO Tom Gardner, just revealed two brand new stock recommendations moments ago. Together, they've tripled the stock market's return over 12+ years. And while timing isn't everything, the history of Tom and David's stock picks shows that it pays to get in early on their ideas.

Click here to be among the first people to hear about David and Tom's newest stock recommendations.

*"Look Who's on Top Now" appeared in The Wall Street Journal which references Hulbert's rankings of the best performing stock picking newsletters over a 5-year period from 2008-2013.

Compare Brokers