Tim Hortons, Burger King shares surge, traders anticipate tax friendly merger

The Canadian Press
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A Tim Hortons restaurant is seen located next to a Burger King restaurant in Lower Sackville, N.S. on Monday, August 25, 2014. Burger King is in talks to buy Tim Hortons in hopes of creating a new, publicly traded company with its headquarters in Canada.

OAKVILLE, Ont. — Shares in Burger King and Tim Hortons have jumped dramatically on news the two fast-food chains are talking about joining forces.

It’s not known what such a deal would be worth, but both stocks surged with U.S.-based Burger King (NYSE:BKW) up 15.09 per cent to US$31.20. Shares in Tim Hortons (TSX:THI) jumped 18.63 per cent to C$74.54 on the Toronto stock market, up $11.70.

Both companies have confirmed they are talking and have said Oakville, Ont.-based Tim Hortons and Miami-based Burger King would operate as standalone brands.

But if the transaction goes ahead, the new publicly traded company would be based in Canada and would have tax advantages for the U.S.-based burger chain.

Burger King would be able to shave its American tax bill in what’s called a tax inversion, something that has become increasingly popular among U.S. companies trying to cut costs.

In an inversion, a U.S. company reorganizes in a country with a lower tax rate by acquiring or merging with a company there. Inversions allow companies to transfer money earned overseas to the parent company without paying additional U.S. taxes. That money can be used to reinvest in the business or to fund dividends and buybacks, among other things.

Companies like AbbVie, a pharmaceutical with its headquarters just outside Chicago, have tied up with companies overseas to achieve that type of tax cut.

More recently, Walgreen, the huge retail chain, backed away from such a plan under intense pressure in what is becoming an increasingly hot political issue in the United States.

Under a deal between Burger King and Tim Hortons, 3G Capital, the majority owner of Burger King, would 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 (TSX:THI) and Burger King.

The companies say the new corporation would be the world’s third-largest quick service restaurant company, with approximately $22 billion in system sales and over 18,000 restaurants in 100 countries worldwide.

When Tim Hortons chief executive Marc Caira, a former executive at the global operations of Swiss food and beverage company Nestle, took over the top job at the coffee chain last year he placed everything under review.

The company launched a wide ranging review of its priorities and ways that it could boost its reputation with both domestic and international coffee consumers.

Tim Hortons dominates the Canadian coffee market, but it has struggled to find success in the U.S.

It has also faced competition here in Canada in recent years from Starbucks Corp. and McDonalds Corp., which has worked to improve its coffee.

The chain has been working to appeal to customers beyond coffee and doughnuts, with new menu items such as a crispy chicken sandwich and side dishes to boost breakfast and lunch sales.

Shares in Tim Hortons have been trading sharply higher in recent weeks after reporting better than expected financial results and raising its outlook for the year.

The companies said they will not comment further unless there is a deal.

(With files from The Associated Press)

 

 

Organizations: Tim Hortons, Burger King, TSX NYSE Starbucks Corp. McDonalds Corp. The Associated Press

Geographic location: U.S., OAKVILLE, Canada Toronto Chicago

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