Burger King Worldwide, Inc.
) announced a definitive merger agreement to buy Canadian doughnut
giant Tim Hortons Inc. (
) in a transaction valued at approximately $11 billion. Per the
deal, shareholders of Tim Hortons have the option to receive either
65.50 Canadian dollars in cash and 0.8025 common shares of the new
company for each share of Tim Hortons they own or 88.50 Canadian
dollars in cash or 3.0879 shares of the new company for each share
of Tim Hortons they own.
3G Capital - a New York-based investment firm that owns 70% of
Burger King's shares - would now own approximately 51% of the new
company with the balance being held by current public shareholders
of Burger King and Tim Hortons.
Burger King has secured commitments for $12.5 billion of funding
for the cash portion of the transaction. As previously announced,
$3 billion will be financed by Warren Buffett's investment company,
Berkshire Hathaway Inc. (
) and the balance $9.5 billion debt financing package will be led
by JPMorgan Chase & Co. (
) and Wells Fargo & Company (
Not a Tax Driven Deal - Says Burger King
The newly-formed company would have its headquarters in Canada as
it represents the largest market for the new company.
Investors speculated that Burger King opted for the merger to shift
its headquarters to Canada in order to save taxes. Burger
King, however, claims that this is not a deal made to save tax.
Burger King's effective tax rate is currently in the mid to high
20s, which is almost consistent with the existing rates in Canada.
Burger King will continue to have its headquarters in Miami and
thus will pay the same federal state and local taxes as it
Shares of the new parent company will trade on the New York Stock
Exchange and the Toronto Stock Exchange.
So What's the Benefit?
Burger King is the second largest fast food hamburger chain in the
world, while Tim Hortons is the largest coffee and doughnuts seller
in Canada. The merger would create the third-largest fast
food company in the world with a market value of roughly $18
billion. The combined business would generate about $22 billion in
sales and constitute more than 18,000 restaurants in 100 countries.
The two companies would however continue to operate on a standalone
The merger would be beneficial for shareholders of both the
companies. Besides offering revenue synergies as a result of
accelerated international growth, the deal would generate costs
savings as well. Given their size, both companies would have
greater purchasing power, economies of scale and efficiencies in
marketing and operations. Moreover, both the companies would have
the opportunity to continue to expand their unique brands.
After its merger with Tim Hortons - a seller of coffee, doughnuts,
and other breakfast food items, Burger King would be able to enter
the grocery business by selling packaged coffee at supermarkets in
North America and also reinvigorate its breakfast business.
However, this would further intensify competition for fast food
chains like McDonald's Corp. (
) and Yum! Brands, Inc. (
). In fact, per media reports, McDonald's is also planning to start
selling packaged coffee at supermarkets and grocery stores in the
U.S. by early 2015. (Read:
McDonald's (MCD) to Offer Packaged Coffee in U.S.
Burger King currently has a Zacks Rank #3 (Hold). Investors should
watch the space to see whether the current developments have an
impact on the company's Zacks Rank.
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BURGER KING WWD (BKW): Free Stock Analysis
TIM HORTONS INC (THI): Free Stock Analysis
JPMORGAN CHASE (JPM): Free Stock Analysis
YUM! BRANDS INC (YUM): Free Stock Analysis
BERKSHIRE HTH-B (BRK.B): Free Stock Analysis
MCDONALDS CORP (MCD): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
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