Burger King (BKW) announced that it is buying donut making Tim Hortons (THI) for $11B. Each share of Tim Hortons will receive cash of $65.50 Canadian ($59.74 US) and 0.8025 common shares of the new company. Based on BK's Monday closing price, each share of Tim Hortons is being valued at $94.05 Canadian (US $85.79). Tim Hortons' shareholders may elect to receive all cash or all stock in the merged company.
Basing the new company in Canada will benefit Burger King tax-wise, although BK denies that tax savings are a main reason for the merger. Instead, BK management claims the merger will help the companies expand internationally, increase their share of the breakfast market and strengthen their positions against competitors such as McDonalds (MCD) and Starbucks (SBUX).
For more details on the deal, read: Burger King buying Tim Hortons for about $11B
Excerpt:
MIAMI (AP) — Burger King says it struck a deal to buy Tim Hortons Inc. for about $11 billion, a move that creates the world's third-largest fast-food company and could accelerate the international expansion of the Canadian coffee and doughnut chain.
The corporate headquarters of the new company will be in Canada. The two brands will continue to be run as stand-alone chains, with Burger King still operating out of Miami.
Some analysts have suggested that Canada's lower tax rates stand to benefit Burger King over time. But Burger King said that's the not main motivation for the deal.
During a conference call with analysts and investors, Burger King Executive Chairman Alex Behring stressed that international growth possibilities are driving the deal. He noted that 3G Capital, the investment firm that owns a majority stake in Burger King, has turned the hamburger company into one of the fastest-growing chains since buying it in 2010. He said that experience will be applied to Tim Hortons. (Burger King buying Tim Hortons for about $11B)
3G Capital, which bought BK in 2010, will own about 51% of the merged company. 3G Capital has been busy cost cutting at BK. Business Insider's Haley Peterson notes that "the offer is most likely part of BK's huge cost-cutting plan.
Last year, 3G and Berkshire Hathaway bought Heinz. Berkshire Hathaway is helping finance the deal but will not be involved in managing operations.
Tax inversions, which result from US companies buying foreign companies and relocating their headquarters out of the US, deprives the US government of tax revenue. Warren Buffett, who has supported higher income taxes for America's wealthy, is getting criticism over Berkshire's involvement. What looks like a legal tax evasion scheme is not bolstering Buffett's reputation among the "tax-the-rich-more" crowd. However, to be realistic, it is not the job of corporations to be "patriotic" and pay higher taxes.
Zero Hedge writes,
President Obama would have proudly proclaimed Warren Buffett a true patriot in his bailing out of the banking system with expensive loans and his 'realization' that those earning more than $1 million should be tax-tax-taxed. However, the "Buffett Rule" appears to have one caveat… if you are making over a $1 billion, you're good to go with tax-avoidance strategies. In one of his career's most hypocritical moves Warren "tax-me-more" Buffett has decided that putting his money where his mouth is no longer makes sense.. and is funding $3 billion of Burger King's "tax-inversion" takeover of Canada-based Tim Hortons. Somewhere on a golf course, a Presidential Putter is being snapped across a knee…
The deal would create the world's third largest quick-service restaurant company, with about $23 billion in system sales and more than 18,000 restaurants in 100 countries.
The new global company will be based in Canada, though each brand will be managed independently after the deal's completion, the companies said.
But, in what appears a straight up challenge to the Obama administration's "Patriot Defense", Warren "Tax Me More" Buffett has decided it is entirely patriotic and capitalistic to sponsor tax avoidance strategies… ("Tax Me More" Buffett To Finance Burger King's Tax Inversion Deal)
