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Burger King Looks To Acquire Tim Hortons

August 25, 2014 | About:

Burger King (BKW) is in acquisition talks with Tim Hortons, the Canadian doughnut and coffee chain. This deal can create new business records in the fast-food chain industry and give the burger giant a big boost in the quick service restaurant space. The company’s shares are soaring high amid these merger discussions.

A bigger player

Burger King was founded in 1954 with its headquarters in Miami, Florida. Now it has 13,000 outlets around the globe running on the base of franchisees. The majority of shares of Burger King is owned by an American company, 3G, and now 3G will look after the shares of the new company too. Tim Hortons is based in Oakville, Ontario, is famous for its coffee, with high margin.

The merger between the two food giants is expected to create the world’s third-largest quick-service restaurant. The headquarters of the new entity will be situated in Canada and the corporate tax in Canada is expected to be lower than the United States. Burger King is a well reputed brand of the U.S., and its transfer to Canada shall bring loss to the American government.

The fast-food giant is expected to create a new corporate parent that would look after both the companies and provide authorities to both of them to operate independently. A proper legal agreement between both the companies is expected to arrive soon. The market value of Tim Hortons and Burger King are $8.4 billion and $9.6 billion, respectively. Together both the companies would have a whooping market value of 18 billion.

The possible key trigger

The United States has very high corporate taxes, and this is the reason why many American brands have to look to foreign companies to take over so that they can move their headquarters abroad and have lower tax bills. Tax inversion has become a new trend in America, and American lawmakers feel that the companies that are doing so are legally cutting down their tax bills but it is an unfair method. The American corporate tax rate is 35% whereas that of Canada is 15%, less than half that of America.

Burger King’s main motive of transfer is not tax bill as it pays 27% tax rate to the government. So for the company it won’t be much of a reduction in the tax bill. It might have decided to move out to allure the Canadian authorities because deals in Canada are monitored by the Investment Canada Act, which can even stop a merger if the authority feels that the country is not benefited by it.

The deal would be beneficial to both the giants as Burger King, with its years of experience, can bring exposure to Tim Horton and help accelerate its growth in the international market. As for Burger King, it will get a restaurant chain which is synonymous with coffee in Canada. Together, both the brands will be a tough competitor for McDonald's (NYSE:MCD), Yum! Brands’ (NYSE:YUM) KFC and Taco Bell. This will be the first time the Canadian restaurant chain will move into the hands of a foreign brand. It was taken over by Wendy’s (NASDAQ:WEN) in 1995 but later dismissed the deal in 2006.

Last thought

The two companies together have the potential to create new benchmarks if they receive a go-ahead sign from the regulatory authorities. The merger between the two food brands is expected to enhance the performance of the joint company. Will the acquisition proposal be taken positively? What would be the deal terms? It would be exciting to watch the two majors make their way through the deal.

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