Burger King in merger talks with Canada’s Tim Hortons
25 Aug 2014
Burger King is in merger talks with Canadian coffee and doughnut chain Tim Hortons Inc in a deal that would create a fast food powerhouse with a market capitalisation of around $18 billion, Reuters reported.
The merger talks were confirmed by the companies that are comparable in size by market value. The companies said the new company, based in Canada to take advantage of lower overall corporate taxes, would be the third-largest fast-food restaurant in the world.
According to sources familiar with the development, the deal to be structured as a so-called tax inversion transaction would see Burger King domiciled out of the US.
Recent attempts by companies to opt for tax inversion deals to avoid higher US taxes and save money on foreign earnings and cash held outside the US had drawn the attention of president Barack Obama, who slammed the "herd mentality" of companies in seeking such deals.
Tax inversions had become popular in recent months as low interest rates were making it cheaper for companies to make acquisitions, KeyBanc analyst Christopher O'Cull wrote in a note to clients about the potential deal.
''A key driver of these discussions is the potential to leverage Burger King's worldwide footprint and experience in global development to accelerate Tim Hortons growth in international markets,'' Tim Hortons said in a statement.
''3G Capital, the majority owner of Burger King, will continue to own the majority of the shares of the new company on a pro-forma basis, with the remainder held by existing shareholders of Tim Hortons and Burger King.''
Tim Hortons CEO Marc Caira outlined his five-year strategic plan for the chain in February, which sought expansion of the restaurant base and encouraging customers to spend more during each visit to slim the gap between what customers spent compared with McDonald's and Starbucks, The Globe and Mail reported.
Based in Oakville, Ontario, the company is well-known for its coffee, which offered high-margins, which attracted US fast food giants keen on cornering a share of the market.
The Canadian company's second-quarter results beat analysts' estimates, with profit remaining flat at $123.8-million, although its share profit was up to 92 cents from 81 cents.