WSJ : Walgreen Weighs Riding Tax-Inversion Wave

Walgreen Weighs Riding Tax-Inversion Wave
Drugstore Chain May Relocate to Switzerland if It Chooses to Buy Remainder of Alliance Boots

Walgreen Co. WAG +0.14% 's first pharmacy opened 113 years ago inside a hotel on Chicago's South Side and this year, the chain will derive nearly all its sales and most of its profits from its 8,700 U.S. locations.

But Walgreen is currently thinking about leaving American shores, as part a plan to buy the rest of Alliance Boots GmbH, which operates a U.K. drugstore chain and is based in Switzerland. The move could help Walgreen lower its U.S. tax bill saving the company hundreds of millions of dollars a year—money that wouldn't flow into the U.S. Treasury.

Related
Obama Administration Urges Immediate Action on 'Inversions'
If it goes ahead, it would be an unusual use of the controversial and complex maneuver known as an inversion. While well tested among pharmaceutical and manufacturing companies that earn much of their income overseas or have assets like patents that are held offshore, the move has never been attempted by a major U.S. retailer, according to tax experts.

The maneuver would be a bet on the future. Apart from Alliance Boots' contributions, Walgreen makes all of its money in the U.S. But with the domestic market for drugstores now saturated—75% of Americans live within five miles of a Walgreen-owned pharmacy—investors and analysts see faster growth coming from places like China and Latin America.

Drug companies and medical device makers are making multi-billion-dollar merger deals to avoid high U.S. corporate taxes. How do so-called "inversion deals" work? WSJ's Jason Bellini has The Short Answer.
A full combination with Alliance Boots would mean that roughly a third of Walgreen's profits will come from outside the U.S., according to analysts and investors. Alliance Boots operates 2,500 drugstores in the U.K. out of 3,150 stores globally, and has a wholesale drug distribution business which generates two-thirds of its revenue. In May, it agreed to buy Farmacias Ahumada, FASA.SN +0.04% which operates more than 1,400 stores in Mexico and Chile.

A tax inversion, which would relocate headquarters to a more tax-friendly country like Switzerland, would ensure that those profits aren't stuck overseas and avoid the tax hit that otherwise would come with bringing the money back to the U.S. Freed up, that cash could be used to buy back shares, pay dividends or reinvest in Walgreen's U.S. stores.

"It would give the group access to those earnings without tax leakage," said Robert Willens, president of Robert Willens LLC, a tax and accounting advisory firm. Profits earned overseas are subject to the 35% U.S. corporate tax rate when brought back to the parent company. Switzerland's corporate tax rate is 17.9%, including other local taxes, according to KPMG.

Americans for Tax Fairness, a liberal tax reform group, estimates that Walgreen would pay $4 billion less in taxes over the next five years if it does an inversion, based on calculations from UBS AG UBSN.VX +0.72% , Deutsche Bank AG DBK.XE +1.15% and J.P. Morgan Chase JPM +3.52% & Co.

Mr. Willens, meanwhile, expects the savings to be about half that since Walgreen would still pay U.S. corporate tax on its U.S. income.

The move wouldn't let Walgreen escape U.S. taxes on the share of profits it generates in the country. Walgreen spokesman Michael Polzin said the company would still pay at least $2 billion a year in federal, state and other taxes. But an inversion would facilitate ways to reduce Uncle Sam's cut through so-called income-shifting transactions. Walgreen's U.S. business, for instance, could take on much of the company's debt, and the interest would lower its taxable income at home. Alternatively, the U.S. business could pay a fee to its overseas parent corporation for management services.

Walgreen has an option to buy the rest of Alliance Boots between February and August of next year. Walgreen executives will brief investors in the coming weeks whether the company plans to acquire the remaining stake, how it would structure a deal and where the combined company would be based.

Walgreen executives are leaning toward moving to Switzerland but are concerned possible new legislation from Congress could become a roadblock, according to a person familiar with their thinking. Congress is considering passing a bill to make inversions more difficult.

Under terms of the original deal, Walgreen would pay around $16 billion, excluding debt, for the 55% of Alliance Boots it doesn't already own. It bought a 45% stake in 2012 for about $6.7 billion.

A group of prominent investors including activist hedge fund Jana Partners LLC is pressing Walgreen to relocate abroad to save on its tax bill. After long resisting the idea, Walgreen Chief Executive Greg Wasson said for the first time on a conference call last month that the company is looking at relocating outside the U.S. In response to an analyst's question about inversions, Mr. Wasson said the company is looking at the tax structure and "what the structure could do as far as our effective tax rate."

"We're going to do what's in the best long-term interest of our shareholders, customers and employees," Mr. Polzin, the Walgreen spokesman, said.

A spokeswoman for Alliance Boots declined to comment.

Inversions involve buying an overseas company and then relocating outside the U.S. Shareholders of the acquired foreign company must receive at least 20% of the combined company's equity for the tax benefits to kick in.

There has been a recent rash of such deals by health-care companies like Medtronic Inc., MDT -0.75% which is seeking to relocate headquarters to Ireland through a $42.9 billion acquisition of medical devices rival Covidien COV -0.68% PLC. AbbVie Inc. ABBV -2.57% this week is making a similar play for Dublin-based Shire SHPG -1.86% PLC at $53.6 billion.

Retailers are just now getting pulled in. On July 2, pregnancy-wear retailer Destination Maternity Corp. DEST -0.31% said it wants to buy Mothercare MTC.LN -0.68% PLC for $453 million and relocate its headquarters to the U.K., where Mothercare is based. Philadelphia-based Destination Maternity argues the deal would give it a more global footprint and would protect Mothercare's earnings from getting caught in the U.S. tax net.

Mothercare's board rejected the deal, saying it undervalues the company.

In 2009, doughnut chain Tim Hortons THI.T -0.27% did a so-called self-inversion and relocated its headquarters from the U.S. to Canada, where it did most of its business, trading shares between two subsidiaries to facilitate the move.

Minimizing taxes wasn't part of the formula when Walgreen bought its first stake in Alliance Boots in 2012. Mr. Wasson touted the deal as one that would give Walgreen greater global exposure as domestic sales were slack, and that the combined companies would have greater heft when it came to purchasing generic drugs.

Analysts didn't press for details on the tax structure during a conference call to discuss the deal on the day it was announced. But the issue picked up steam late last year as investors started pushing for a move.

Walgreen dismissed the idea as recently as March, when Mr. Wasson, the chief executive, said the company wasn't considering an inversion.

But the following month, investors including hedge funds Jana Partners, Corvex Management LP and Och-Ziff Capital Management Group OZM +1.64% LLC met with Mr. Wasson, Walgreen Chief Financial Officer Wade Miquelon and Alliance Boots Chairman Stefano Pessina in Paris to ask them to reconsider. Walgreen warmed up to the idea soon afterward, culminating in Mr. Wasson's declaration on last month's earnings call that the company is "looking at all and everything."

"The likelihood went up dramatically," Jefferies analyst Mark Wiltamuth said of the odds of an inversion for Walgreen. "The only reason you consider timing and structure is because you are clearing the path for conversion."

FT : Michael Kors sinks on wave of target cuts

Michael Kors sinks on wave of target cuts

Luxury handbag maker Michael Kors was felled on Tuesday as at least three brokerages cut price targets on the company, citing a litany of issues including rising promotions and elevated inventory levels.
Analysts with Barclays, Sterne Agee and Citi cut price targets, sending the shares 7 per cent lower to $79.44.

Sterne Agee analyst Ike Boruchow noted that Michael Kors had increased discounts over the summer months, a tactic many mall-based retailers have adopted in an effort to boost sales as consumer spending falls short of Wall Street expectations.
“Elevated inventory levels, broader discounting and investment needs may all combine to pressure margins in the near future, and as a result, we believe it will be difficult for the stock to outperform materially despite solid top-line trends,” Mr Boruchow said.
Barclays analyst Joan Payson added that there was a noticeable “uptick in summer promotional activity compared to that in prior years”, as the company discounted between 30 and 50 per cent of merchandise in stores.
The company has seen a sharp reversal in sentiment over the past few months as investor and analyst concerns mount that rapid growth recorded since shares were listed in 2011 cannot be sustained.
Michael Kors saw a fourfold jump in its market capitalisation between its debut on the New York Stock Exchange and the start of 2014, touching $20.4bn this past February.
The declines on Tuesday took Michael Kors’s descent from that peak to more than 20 per cent and reduced its market cap to $16.5bn.
Rivals including Burberry and Ralph Lauren have had a difficult start to the year as well, falling 7 and 10 per cent, respectively.
Mr Boruchow noted the handbag maker’s same-store sales “remain among the best in retail” and said Michael Kors would benefit from an expansion in Europe despite a maturing US business.
JPMorgan led the benchmark S&P 500 higher after the US bank said quarterly profits topped Wall Street expectations.
Profits at the bank fell to $6bn, or $1.46 a share, from $6.5bn, or $1.60 a share, in the same quarter a year earlier. The bank also became the latest to suffer a slide in revenues, which fell 2 per cent to $25.3bn.
While JPMorgan’s fixed-income division was, once again, the chief drag in the quarter, the decline in trading revenues was not as steep as expected.
Fixed-income revenues fell 15 per cent to $3.5bn from the same quarter in 2013. Analysts had forecast a decline of 20 per cent.
Wall Street rival Goldman Sachs also surpassed low expectations, reporting a surprise rise in second-quarter profits.
Goldman earned $2bn, or $4.10 a share, in the quarter to June 30 compared with $1.9bn, or $3.70 a share, in the same quarter a year earlier. Revenues climbed to $9.1bn from $8.6bn.
The biggest positive surprise came from Goldman’s bond and currency business, historically a key profit engine for the bank.
Although revenues fell 10 per cent to $2.2bn, that was less than half the 23 per cent decline that Wall Street analysts had forecast.
Shares of JPMorgan climbed 4 per cent to $58.27 while Goldman advanced 1 per cent to $169.17. Morgan Stanley rose 1 per cent to $32.00 while Bank of America increased 2 per cent to $15.81.
Campbell Soup and Kellogg were under pressure on Tuesday after Goldman Sachs lowered its rating on each to “sell” from “neutral”.
Analysts with Goldman warned that eroding demand and higher tomato prices would cut into Campbell’s profits, and said they expected Kellogg to cut guidance as sales remained weak.
Shares of Campbell Soup declined 3 per cent to $44.14 while Kellogg fell 1 per cent to $65.56.
Overall, markets trended lower following a US Federal Reserve report that said valuations for smaller social media and biotechnology companies appeared “substantially stretched”, despite better than expected revisions to monthly retail sales data.
The S&P 500 fell 0.2 per cent to 1,973.28 while the Dow Jones Industrial Average inched 5.3 points lower to 17,060.68. The technology-heavy Nasdaq Composite declined 0.5 per cent to 4,416.39.

(Exane) Alstom - Changing Trains

* Alstom was viewed as a sub-scale energy player facing irreversible decline and burdened with an
ill-adapted financial structure. Then GE came along, buying the energy assets for EUR12.4bn. This
radically altered the outlook and risk profile for the ‘New Alstom’. Upgrade to Outperform.

* Alstom Transport at a 50% discount to peers – upgrade to Outperform, EUR32 TP
Based on our estimates, the current share price implies Alstom Transport at a 50% discount to
rolling stock peers. This looks excessive given the limited transaction risks. Our EUR32 TP reflects
a 15% discount, which could diminish progressively as Alstom discloses more information.

* Cash returns – a key catalyst
The announcement of the capital allocation strategy should be a catalyst, a test of management’s
ability to use excess cash in a value-creative way. With EUR4bn in adj. net cash, Alstom could
keep c.EUR2bn to exploit rail opportunities and return EUR2bn+ via a share repurchase offer.

* Rail Transportation – cyclical recovery with improving cash profile
Post-deal, Alstom will be the world’s third-biggest rail transportation player with sales of EUR6.6bn.
While EM competitors pose a LT threat, Alstom offers high-single-digit sales growth driven by
cyclical recovery, 140bp margin upside and improving cash generation thanks to urbanisation.

* Energy JVs – some upside potential, at worst ‘stranded cash’
Alstom’s EUR2.6bn reinvestment in Energy at the request of the French State might have
disappointed investors longing for a rolling-stock pure play. However, the JVs, jointly operated with
the no. 1 player, could offer up to EUR2/s in synergy benefits on our estimates. Also, downside
protection from a 2018/19 put at the entry price underlines the investment’s cash-like nature.

* French State on board – a manageable negative
The French state has the right to buy a 15–20% stake from Bouygues and will own 20% of voting
rights post-closing. We would prefer the state were not involved but this is a manageable negative,
and history shows no direct impact on performance from the state having a small stake (10–30%).

(Citi) - Take Over Rules Conference Call (AZN, PFE. BMY, NOVOB, ROG,

* Less risk to PFE approach at 3 months than initially envisaged — Within a
general M&A context, Linklaters clarified on the call that an acquirer can re-engage
at 3 months with the approval of the target company at or above the previous offer.
Importantly, (i) the acquirer has flexibility to negotiate with the target company as
soon as the 3 months have expired; (ii) there is no legal obligation for either
company to disclose an approach has been made. Consequently, we believe there
is less risk to PFE in making a second approach to AZN at 3 months than we had
previously envisaged. Despite this, we continue to view PFE waiting until the 6
months has expired as the most likely outcome when PFE can make an offer that
does not require target board approval. We continue to believe AZN's intrinsic value
to be in excess of £49 per share (Pipeline Value Still Underappreciated With or
Without PFE. BUY). We prefer BUY rated AZN, Roche and Novo in EU. We prefer
BUY rated BMY and PFE in the US.

* Increased probability of PFE approach in August — We have increased the
probability that we ascribe to PFE making a second approach for AZN from 10% to
25% when the 3 month period expires. We anticipate a 40% probability that PFE reapproaches
AZN in late November on expiry of the 6 month period. We had
previously assumed that PFE would desist from approaching AZN at 3 months
given (i) implied takeover code restrictions on negotiation (ii) the risk that PFE could
appear weak in front of its shareholders. We previously believed that PFE would be
publicly forced to disclose any approach at or beyond 3 months.

(BFW) Pfizer May Make New Approach for AstraZeneca in August: Citi

Pfizer May Make New Approach for AstraZeneca in August: Citi
2014-07-16 07:45:01.292 GMT


By Allison Connolly
     July 16 (Bloomberg) -- Citi sees fewer obstacles to fresh
Pfizer approach 3 mos. after co. abandoned efforts to buy
AstraZeneca in May, citing discussions with Linklaters legal
team about U.K. takeover code; still sees 6 mos. most likely,
according to note.
  * Says an acquirer can re-engage at 3 mos. w/ approval of
    target co. at or above previous offer
    * Notes no legal obligation for either co. to disclose
      that an approach has been made
  * Still sees Pfizer waiting until 6 mos. have passed, when it
    can make offer that doesn’t require AstraZeneca board
    approval
  * Sees Astra’s intrinsic value >GBP49/shr, has buy rating
  * NOTE June 20: Pfizer/Astra talks in 3-6 mos. wouldn’t be
    surprise: JPMorgan


For Related News and Information:
First Word scrolling panel: FIRST<GO>
First Word newswire: NH BFW<GO>

To contact the reporter on this story:
Allison Connolly in London at +44-20-3525-7043 or
aconnolly4@bloomberg.net
To contact the editors responsible for this story:
James Ludden at +44-20-7673-2645 or
jludden@bloomberg.net
Andrew Rummer

>>> Banco Popular analysing three portential targets in US

Banco Popular analysing three portential targets in US 

Banco Popular of Spain has identified three potential acquisition targets in Florida (US), reported the Spanish-language business daily Cinco Dias, without citing any sources.

Banco Popular wants to double its size in the US via an acquisition, according to the report.

The Spanish bank owns the Florida-based TotalBank which has 19 branches and 444 employees, the item added.


Source Cinco Dias

>>> Ezra Holdings considers US listing for subsea unit

Ezra Holdings considers US listing for subsea unit

Ezra Holdings could be considering a US listing for its subsea business, reported the Business Times, citing analysts reports released in connection with last week's announced sale of its marine services unit.

One report from Deutsche Bank said the listing could occur in the US rather than Singapore.

The marine services sale announced last week is worth USD 520m, with Ezra receiving USD 150m in cash and an increase in its stake in the bidder, Oslo-listed associate EOC, to 84.6%. EOC will subsequently undertake a secondary listing on the SGX.

These initiatives are in line with recent shareholder support for Ezra to unlock additional value from its businesses, this news service reported earlier this week, citing Ezra CFO Eugene Cheng Chee Mun. In the same report, Cheng said the company now sees the bulk of its future prospects coming from its subsea business, and will focus on this area for the next three years.

Ezra engaged JP Morgan earlier this year for a strategic review of the subsea unit, including a listing in the "right location". Cheng said this week that the review is continuing, with no hurry.

Source Business Times