Inversion deals have been on the rise lately, and are facing stiff opposition in Washington given that they threaten to deplete U.S. government coffers. A move by Burger King to seal one is sure to intensify criticism of them, since it is such a well-known and distinctly American brand.
A person familiar with the matter said a deal between the two companies could be struck soon, though additional details on timing couldn't be learned. Tim Hortons has a market value of about $8.4 billion, while Burger King's is about $9.6 billion, so together the restaurant companies are currently worth about $18 billion.
By moving to a lower-tax jurisdiction, inversion deals enable companies to save money on foreign earnings and cash stowed abroad, and in some cases lower their overall corporate rate. Even though many of the headline-grabbing inversion deals of late have involved European companies, Canada has also been the focal point for a number of them, given its proximity and similarity to the U.S. Canada's federal corporate tax rate was lowered to 15% in 2012.
Valeant Pharmaceuticals International Inc., VRX.T +3.06% which had been based in California, combined with Canada's Biovail Corp. in 2010 and redomiciled in Canada. The company now has a tax rate less than 5%.
Nevertheless, Burger King, whose initial approach to Tim Hortons came more than a month ago, doesn't plan to have a provision in a merger agreement that would allow it to walk away from a deal if laws are passed that diminish the benefits of inverting, people familiar with the matter said.
In the current wave of such deals, most inversions have been struck by health-care companies. An inversion deal by Burger King would suggest that the deals have wider appeal beyond the health industry, as companies from a range of industries consider ways to become more competitive from a tax perspective.
Burger King was founded in 1954 with a single restaurant in Miami, where it is now based. It has since grown to be the world's second-largest hamburger chain, according to the company's website. There are more than 13,000 Burger King locations in nearly 100 countries, serving more than 11 million people daily, the site says.
Tim Hortons, based in Oakville, Ontario, is well-known for its coffee, a high-margin business line in which U.S. fast-food giants have raced to grab market share. Burger King has been adding more coffee items and flavors to its menus to catch up with rival McDonald's Corp. MCD -0.08% , which has had success with a specialty coffee line called McCafe. Burger King paired up with Seattle's Best Coffee, a brand owned by Starbuck's Corp., to help its effort gain traction.
In 1995, Wendy's Co. WEN +1.04% acquired Tim Hortons. At the time, the fast-food company's executives were looking for growth outside of the burger market.
Activist hedge fund Pershing Square Capital Management, run by William Ackman, and Trian Fund Management later accumulated stakes in Wendy's and demanded that the company spin off the Canadian chain, which it did in 2006.
Last year, hedge funds Scout Capital Management LLC and Highfields Capital Management LP announced stakes in Tim Hortons and called for the company to curtail its U.S. expansion plans and increase its leverage to buy back more shares.
3G, which has offices in Rio de Janeiro and New York, has become a major player in the U.S. food sector, with a taste for iconic brands. Billionaire co-founder Jorge Paulo Lemann was a big shareholder in brewer InBev and helped engineer its 2008 acquisition of Anheuser-Busch. 3G last year teamed up with Warren Buffett to buy U.S. ketchup maker H.J. Heinz Co. for $23 billion, one of the largest deals of the year.
A key rationale for the deal is the potential to leverage Burger King's expertise in global development to boost Tim Hortons' international growth, the companies said, adding they plan operate the two as stand-alone brands.
source: huffingtonpost.com By Liz Hoffman and Dana Mattioli