Oakville, Ontario, Canada (4E) – Burger King, whose flagship Whopper is amongst the best selling fast food items of all time, is now in discussion with Canadian donut and coffee magnate Tim Hortons. Should the deal push through, this would create one of the biggest and most lucrative fast food businesses in the world.
The terms of the deal include the transfer of the burger joint’s corporate headquarters across the border. This is another example of an American firm choosing citizenship in another country in order to avoid an ever increasing tax bill. Another term of the deal would be the creation of a new corporate parent that would hold both chains yet allow them to operate independently. Put together, the new corporation would have a market valuation of upwards of USD18 billion.
Because of the planned merger, the share prices of Burger King increased by 16% in pre market trading or about USD31.50 per share. On the other hand, Tim Hortons’ stock rose by 15% to USD72.00 per share. The planned inversion, which is essentially a company would register or acquire or merge with a company listed in a country with a lower tax rate, would result in more savings and thus more investible funds in the company, either through dividends or buybacks.
The deal would put the 3G Capital, majority owner of Burger King, as the majority owner of the shares in the new company formed with Tim Hortons. 3G Capital purchased Burger King and privatized it in 2010 but again listed it publicly in 2012. On the other hand, Tim Hortons was purchased by Wendy’s International back in 1995. In 2006, Tim Hortons was spun off as a separate entity after it was listed publicly through an IPO.
With the partnership, Tim Hortons would be able to expand internationally, expanding its current roster of 4,546 restaurants, with 50 in the Gulf Coast countries, 866 in the United States and the majority of 3,630 in Canada.
Tim Hortons has registered success under the able leadership of its CEO Marc Caira. The formula was to introduce new menu items that helped increase revenues and profits. The only drawback has been its inability to expand into the US markets. Another problem is its decreasing market share domestically, with McDonald’s Corp’s McCafe and Starbucks Corp encroaching on home turf.
A lengthy joint statement was issued by the two companies, which read as follows:
“In response to media reports, Tim Hortons Inc. (THI: TSX; NYSE) and Burger King Worldwide Inc. (BKW: NYSE) today confirmed that they are in discussions regarding the potential creation of a global leader in the quick service restaurant business. The new publicly-listed company would be headquartered in Canada, the largest market of the combined company.
3G Capital, the majority owner of Burger King, will continue to own the majority of the shares of the new company on a pro forma basis, with the remainder held by existing shareholders of Tim Hortons and Burger King. 3G Capital and its affiliates have a demonstrated track record of managing international expansion of iconic brands around the globe.
Within this new entity, Tim Hortons and Burger King would operate as standalone brands, while benefiting from shared corporate services, best practices and global scale and reach. A key driver of these discussions is the potential to leverage Burger King’s worldwide footprint and experience in global development to accelerate Tim Hortons growth in international markets.
The new company would be the world’s third-largest quick service restaurant company, with approximately $22 billion in system sales and over 18,000 restaurants in 100 countries worldwide. Tim Hortons and Burger King each have strong franchisee networks and iconic brands that are loved by their respective consumers. Any transaction will be structured to preserve these relationships and deepen the connections each brand has with its guests, franchisees, employees and communities.
The transaction remains subject to negotiation of definitive agreements. There can be no assurance that any agreement will be reached or that a transaction will be consummated.
Tim Hortons and Burger King do not intend to comment on this matter further unless and until a transaction is agreed or discussions are discontinued, and specifically disclaim any obligation to provide further updates to the market.”