Burger King is in talks to buy Tim Hortons, the Canadian doughnut and coffee chain, in a merger that would allow the US fast-food restaurant group to relocate its tax base in a so-called inversion deal.
The two companies are in advanced negotiations about a combination that would create a consumer business with a market value of about $18bn and a strong position in doughnuts, hamburgers and caffeinated beverages.
As well as allowing it to lower its effective tax rate, a tie-up with Tim Hortons, which operates throughout Canada, would also give Burger King a foothold in the much coveted breakfast market – an area that traditional fast-food restaurants have struggled to crack.
The exact price Burger King is offering could not be ascertained. However, the two companies have agreed all but a few terms and an announcement on a deal could come as early as this week, according to people familiar with the matter.
In a statement on Sunday night, Burger King confirmed the talks and said that if a merger goes through, it and Tim Hortons would remain standalone brands.
“The new company would be the world’s third-largest quick service restaurant company, with approximately $22bn in system sales and more than 18,000 restaurants in 100 countries worldwide,” Burger King said.
The practice of pursuing deals that allow a company to relocate its legal headquarters overseas, making it impossible for the US to tax profits on operations outside the country, has become increasingly controversial in recent months.
A clampdown on inversions has gathered steam in recent weeks after it emerged that Walgreens, the US drugstore chain, was considering relocating to Europe. Although the move was abandoned, politicians have been quick to seize on what they claim is an anti-American practice. President Barack Obama has branded companies planning tax inversions “corporate deserters”.
However, Burger King already enjoys a tax rate of 27 per cent, below the US headline corporate tax rate of 35 per cent, and people familiar with the deal talks said tax was not the main motivation of the transaction.
Many on Wall Street believe the attack on the inversions – and the rhetoric deployed – is a cynical attempt by Washington to avoid addressing the issue of the US having a tax code that, they argue, makes it hard for its companies to compete globally.
Burger King was taken private by 3G Capital Management, the Brazilian private equity firm, in 2010 before being relisted. It had a market value of $9.55bn as of Friday’s close.
Tim Hortons merged in 1995 with Burger King’s US fast-food chain rival Wendy’s in a successful partnership that lasted until 2005. Tim Hortons was spun off a year later and listed in Toronto and New York.
News of the merger discussions was first reported by the Wall Street Journal.
Date: August 25, 2014
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