AFP
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Burger King is buying Canada’s Tim Hortons coffee-and-donuts chain in an $11.4bn deal that has raised concerns of another US corporate icon moving abroad for tax reasons.
Burger King Worldwide denied that the deal announced yesterday, which would create the world’s third-largest fast-food company, was being undertaken for tax reasons.
But the planned move of the headquarters of the “Home of the Whopper” from Miami to Canada, which could cut its corporate tax bill, sparked calls for boycotts from consumers and objections on Capitol Hill.
Burger King agreed to pay $11.4bn (C$12.5bn) in cash and stock for Tim Hortons, based on the closing share price on Monday.
The deal, backed by legendary investor Warren Buffett, would create a “quick-service restaurant” giant with $23bn in sales and more than 18,000 restaurants in 100 countries.
“By bringing together our two iconic companies under common ownership, we are creating a global QSR powerhouse,” said Alex Behring, executive chairman of Burger King and managing partner of 3G Capital, Burger King’s majority owner.
“This is not a tax-driven deal, this transaction is fundamentally about growth and the focus is on creating value through accelerating international expansion for both brands,” Behring said in a conference call.
Burger King’s effective tax rate “is currently in the mid- to high twenties, which is pretty much in line with the current effective rate in Canada,” he added.
The two brands would continue to operate independently, Burger King overseen from in Miami and Tim Hortons in Oakville, Ontario.
Tim Hortons is Canada’s dominant fast-food chain, operating restaurants across Canada, the US midwest and northeast, and some international locations. The tie-up would give it access to Burger King’s larger footprint in 98 countries and territories worldwide.
According to the latest rankings of QSR, an industry magazine, Burger King currently ranks fifth among fast food and drink chains, behind rival McDonald’s, sandwich chain Subway, coffee titan Starbucks and the Wendy’s chain.
In the deal, Brazilian-controlled 3G Capital will convert its roughly 70% equity stake in Burger King to a 51% shareholding in the new company.
Burger King said it had lined up $12.5bn in financing for the cash portion of the deal. That includes $3bn from Buffett’s Berkshire Hathaway for preferred shares.
Berkshire and 3G Capital partnered in the takeover of ketchup maker HJ Heinz last year.
Daniel Schwartz, Burger King’s chief executive, would be the CEO of the new company, but Berkshire will not take part in the management.
Shares would be traded in New York and Toronto.
Burger King shares were down 3.5% at $31.27 and US-traded shares of Tim Hortons surged 8.7% to $81.04 in early-afternoon trade.
The two companies explained that their corporate headquarters will be in Canada because the country is “the largest market of the combined company.”