Walgreen Co. (NYSE: WAG) has decided to maintain its U.S. home, disappointing some big investors but very likely dodging a nasty reaction from U.S. consumers and the federal government. The company has also said it will exercise its option to acquire all of Switzerland-based Alliance Boots, pending shareholder approval.

Unlike many U.S. firms that have moved offshore to avoid U.S. corporate taxes, a significant percentage of Walgreen’s business comes indirectly from U.S. government programs like Medicare and Medicaid. Customers have already shown Walgreen that they will leave the company behind — a dispute with pharmacy benefits manager Express Scripts Holding Co. (NASDAQ: ESRX) cost Walgreen millions of dollars when customers filled their prescriptions elsewhere. Walgreen does not want that again, nor does it want Congress to retaliate for an offshore move by an iconic American company.

Big investors such as Goldman Sachs, Jana Partners, Corvex and Och-Ziff had been pressuring Walgreen to move its corporate office to Switzerland as it completes its acquisition of Alliance Boots. The investors see the acquisition as a perfect opportunity to make the move, called an inversion, that would cut Walgreen’s corporate tax rate from its expected U.S. level of 37.5% to the 20% rate now paid by Alliance Boots in Europe. That translates to an increase in earnings per share of 75%. Under U.S. rules, if Walgreen transfers more than 20% of its shares to foreign ownership it may legally change its tax status.

Walgreen has until February 15 to receive shareholder approval to acquire the 55% of Alliance Boots that it does not already own for a price of about $5.3 billion. The company said that after consultation with a special committee of its board and outside advisors, it concluded that the Alliance Boots transaction “would not qualify for an inversion under the current tax inversion rules.”

Walgreen is accelerating its three-year plan for absorbing Alliance Boots and raising its estimates of both revenue and profits in hopes of mollifying its big shareholders. We wish them good luck with that.

This is not likely to be the final word we hear on this topic, but Walgreen’s stock is getting hammered Wednesday morning, down more than 13% in early trading to $59.90, in a 52-week range of $46.75 to $76.39.

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