Omaha, NE, United States (4E) – Investment guru Warren Buffett has committed his ample resources behind Burger King’s push to acquire Canadian firm Tim Hortons, Inc. This is a surprise move and further exacerbates the issue of US taxes as the cause of capital flight in the business community in America today.
The often conservative firm of Buffett, Berkshire Hathaway Inc, would often choose investments that are blue chip long term consistent yield over time. Under the proposed terms, the company would invest in the company through the purchase of preferred shares. The total purchase would comprise about 25% of the total financing for the acquisition of Tim Hortons by Burger King. How this investment translates into actual feasible participation not only in the deal but in the future operations still remains to be agreed upon.
This deal though is not being pushed by just Buffett. According to a report from Forbes, Jorge Paulo Lemann, the co-founder of 3G Capital is also pushing for the transfer of corporate address for Burger King. 3G Capital holds the majority stake in the hamburger giant.
Berkshire Hathaway and 3G Capital are same firms that purchased ketchup manufacturer H.J. Heinz Co just last year.
These deals, called inversions, have been termed as contrary to economic patriotism, according to US President Barack Obama. He called companies that undertake these kinds of deals as ‘corporate deserters.’ With Buffett in the picture, it places the White House in a quandary, as Buffett is often consulted by President Obama on economic matters while Buffett had been a vocal supporter of the current administration. The White House has not issued a comment on the matter.
The projected investment would be USD3 billion in preferred equity financing. According to a formal statement from Berkshire Hathaway and Burger King, it read, “Berkshire is simply a financing source and will not have any participation in the management and operation of the business.” Berkshire would be working with J.P. Morgan Chase & Co as well as Wells Fargo.
The news set the Burger King stock on fire, jumping 22% on Monday trading. As for Tim Hortons, under the terms of the proposed deal, each share held would be receiving CAD65.50 in cash and 0.8025 shares in the new merged company. When the deal is completed, 3G Capital/Burger King would own 51% of the new company formed.
The deal would be most complicated on the side of Berkshire Hathaway. With the dividends earned by Berkshire Hathaway, the tax imposed would be at the full rate unlike if the divided was from US based firms, which enjoy a deduction.
Other terms have come to light between Burger King and Tim Hortons. The new company formed between the two would allow for independent management of the two original companies. Contrary to earlier reports, Burger King would remain in its Miami, FL corporate address while Tim Hortons would continue to operate from Oakville, Ontario, Canada. The new parent company would be listed in both the New York Stock Exchange and the Toronto Stock Exchange.