Burger King Defends Plan to Buy Tim Hortons
Burger King Worldwide Inc. executives defended their planned acquisition of Tim Hortons Inc., saying that global
expansion ambitions rather than tax considerations are behind its deal for the Canadian-coffee-and-doughnut chain.
Miami-based Burger King confirmed on Tuesday plans to buy Tim Hortons for about $11 billion, creating a new fast-food
giant that will be based in Canada. The relocation of such a high-profile American brand drew new scrutiny to the debate
over so-called tax inversions at a time when U.S. lawmakers look to stem the growing wave of company departures.
"This is not a tax-driven deal. It is fundamentally about growth and creating value through accelerated expansion,"
Burger King Executive Chairman Alex Behring said on a media call Tuesday. Mr. Behring, who will also lead the new global
company as executive chairman, is a managing partner at 3G Capital, the Brazilian-U.S. investment firm that controls
Burger King and will own about 51% of the combined company.
Executives from Burger King said the deal is designed to create a new powerhouse in the quick-service restaurant
sector, with approximately $23 billion in system sales across more than 18,000 restaurants. But they so far have spelled
out few specific operational benefits of combining the two companies, which are both heavily concentrated in their home
In an inversion, a U.S. firm relocates--usually through a merger with a smaller company--to a country where tax rates
and rules are perceived to be friendlier, but it typically continues to be managed from the U.S.
Adding a twist to the deal, investor Warren Buffett's Berkshire Hathaway Inc. is providing $3 billion in preferred
equity financing, throwing him into the center of the debate over U.S. tax policy. Berkshire Hathaway, which previously
joined with 3G to buy H.J. Heinz & Co. in 2013, won't be involved in the management or operation of the business. Burger
King said the preferred shares Berkshire is buying will carry a 9% coupon.
Burger King Chief Executive Daniel Schwartz said that Burger King's tax rate, which is in the mid-20% range, is
consistent with Canada's corporate tax rate. While Canada's tax rate is lower than the U.S. corporate tax rate, Mr.
Schwartz said Burger King pays a lower blended tax rate because of its presence in so many international markets. He
added that because the Burger King unit of the combined company will remain based in Miami, it will continue to pay the
same U.S. taxes it has previously.
"We don't expect there to be meaningful tax savings or any meaningful changes in our tax rate," said Mr. Schwartz, who
will become group CEO of the combined new company.
Marc Caira, president and CEO of Tim Hortons, who will become vice chairman of the combined entity, said in an
interview that the new company's headquarters will be located in Canada because that will be its largest market by
Miami-based Burger King, founded in 1954, operates in about 14,000 locations in nearly 100 countries. The chain has
become a franchiser that collects royalty fees from its franchisees--not an operator of restaurants.
Burger King's business model of having franchisees bear the brunt of developing new markets while the company collects
royalty fees made Tim Hortons an attractive buy, Mr. Schwartz said in an interview.
"The capital investment to grow the brand around the world comes from our franchisees," Mr. Schwartz said. "That's why
we like our business model. It's a very free cash flow generative model."
Mr. Caira said he viewed Burger King as an attractive partner to help speed Tim Hortons' growth globally. When 3G
bought Burger King in 2010, the chain was developing approximately 150 new restaurants a year. Last year, Burger King
opened just under 700 new restaurants, and the chain has significantly increased its presence in Europe, the Middle
East, Asia and Latin America.
Mr. Schwartz said there are no plans to serve Tim Hortons coffee in Burger King restaurants. "You'll see more cross-
pollination of people, not products."
The acquisition of Tim Hortons, which is Canada's largest quick-service chain and has a market capitalization of about
$10 billion, would have to win Canadian government approval. Tim Hortons, which today operates in only a handful of
countries outside Canada and the U.S., is synonymous with Canada, with more than 3,600 Canadian shops located in strip
malls and street corners in both small towns and big cities. It is named after its co-founder, a former defenseman for
the Toronto Maple Leafs NHL franchise.
At a news conference in Toronto, Canadian Finance Minister Joe Oliver said the merger would require a review by
officials at Canada'sIndustry Department to determine whether the transaction was of so-called net benefit to the
country. Under Canada's foreign-investment laws, foreign-led acquisitions of Canadian assets exceeding 354 million
Canadian dollars ($322 million) are subject to a review to ensure they bring a so-called net benefit--such as
guaranteeing a significant presence in Canada and local investment.
Canada has only blocked three deals since the current rules were implemented in 1985. Legal experts said a deal in the
fast food sector should pass muster as it poses no national security concerns, and the new global company would be based
in Canada, meaning additional tax revenue to federal coffers.
Tim Hortons previously came under foreign ownership when it was acquired by U.S.-based Wendy's International Inc. in
1995. Wendy's spun off the Canadian operation in 2006, and Tim Hortons decided in 2009 to re-domicile to Canada to take
advantage of lower corporate taxes.
To fund the deal, Burger King has obtained commitments for $12.5 billion of financing for the cash portion, including
commitments for a $9.5 billion debt financing package led by J.P. Morgan and Wells Fargo.
Tim Hortons shareholders will receive C$65.50 in cash and 0.8025 shares of the new company for each share, valuing the
restaurant company's stock at C$94.05 based on Monday's close. As an alternative, shareholders will be able to choose to
receive either C$88.50 in cash or 3.0879 shares of the new company.
Shares of the new company will be traded on the New York Stock Exchange and the Toronto Stock Exchange.
Erin McCarthy and Paul Vieira contributed to this article.
Write to Julie Jargon at firstname.lastname@example.org
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