Burger King, Tim Hortons in Merger Talks

In "tax-inversion" deal, combined company would be based in Canada

Published in CSP Daily News

OAKVILLE, Ont. & MIAMI -- Tim Hortons Inc. and Burger King Worldwide Inc. have confirmed media reports that they are in discussions regarding a potential merger. A deal that would be structured as a "tax inversion," and the new publicly listed company would be headquartered in Canada, the largest market of the combined company.

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. 3G Capital and its affiliates have a demonstrated track record of managing international expansion of iconic brands around the globe.

Within this new entity, Tim Hortons and Burger King would operate as standalone brands, while benefiting from shared corporate services, best practices and global scale and reach. 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.

The new company would be the world's third-largest quick-service restaurant (QSR) company, with approximately $22 billion in system sales and more than 18,000 restaurants in 100 countries worldwide. Tim Hortons and Burger King each have strong franchisee networks and iconic brands. Any transaction will be structured to preserve these relationships and deepen the connections each brand has with its customers, franchisees, employees and communities, the companies said.

A person familiar with the matter told The Wall Street Journal that a deal between the two companies could be struck soon. Tim Hortons has a market value of about $8.4 billion, said the report, while Burger King's is about $9.6 billion, so together the restaurant companies are currently worth about $18 billion.

By moving to a lower-tax jurisdiction, tax-inversion deals enable companies to save money on foreign earnings and cash stowed abroad, and in some cases lower their overall corporate rate, said the report.

In 1995, Wendy's Co. acquired Tim Hortons. Activist hedge fund Pershing Square Capital Management, run by William Ackman, and Trian Fund Management later accumulated stakes in Wendy's and demanded that the company spin off the Canadian chain, which it did in 2006. Last year, hedge funds Scout Capital Management LLC and Highfields Capital Management LP announced stakes in Tim Hortons and called for the company to curtail its U.S. expansion plans and increase its leverage to buy back more shares.

In 2010, Brazilian private-equity firm 3G Capital Management bought Burger King and took the chain private. A few years later, the company structured a complex deal with an investment vehicle co-owned by Ackman to go public again, while retaining control of the company. 3G has become a major player in the U.S. food sector, with a taste for iconic brands. Billionaire co-founder Jorge Paulo Lemann was a big shareholder in brewer InBev and helped engineer its 2008 acquisition of Anheuser-Busch. 3G last year teamed up with Warren Buffett to buy U.S. ketchup maker H.J. Heinz Co.

A Burger King-Tim Hortons deal remains subject to negotiation of definitive agreements. There can be no assurance that any agreement will be reached or that a transaction will be consummated, said the companies.

Oakville, Ont.-based Tim Hortons is one of the largest publicly traded restaurant chains in North America based on market capitalization, and the largest in Canada. Operating in the QSR segment of the restaurant industry, Tim Hortons appeals to a broad range of consumer tastes, with a menu that includes premium coffee, hot and cold specialty drinks (including lattes, cappuccinos and espresso shots), specialty teas and fruit smoothies, fresh baked goods, grilled Panini and classic sandwiches, wraps, soups, prepared foods and other food products.

As of June 29, 2014, Tim Hortons had 4,546 system-wide restaurants, including 3,630 in Canada, 866 in the United States and 50 in the Gulf Cooperation Council.

Founded in 1954, Miami-based Burger King is the second-largest fast-food hamburger chain in the world. It operates more than 13,000 locations in 98 countries and territories worldwide. Almost all Burger King restaurants are owned and operated by independent franchisees, many of them family-owned operations that have been in business for decades. Burger King offers Seattle's Best coffee, a Starbucks brand.

Keywords: 
coffee, hot & cold food, M&A, QSR