Warren Buffett’s recent investment in Burger King Worldwide Inc (NYSE:BKW) related to the acquisition of Canada’s Tim Hortons Inc. (NYSE:THI) (TSE:THI) and a potential tax inversion deal has drawn scorn. It raises the question: Is Warren Buffett a hypocrite, as is being implied? Or perhaps is there a second explanation that actually supports Buffett’s decision based on his previous “investing is blind to taxes, it’s all about the deal” documented mantra?
Asness analyzes Buffett’s investment in Burger King
In a tweet today, Cliff Asness, founder of AQR Capital Management, a titan in the algorithmic trading community, makes a discretionary value judgment about Buffett’s motivation in the Burger King Worldwide Inc (NYSE:BKW) deal. “Please Mr. #Buffett tell us again how taxes don’t affect investment decisions,” and then after apparently questioning Buffett’s consistency on the issue Asness points to two links. One is a link to the original Wall Street Journal article noting Buffet’s participation in the deal and how it is likely to raise issues over his tax stance. The second is a link to a previous Wall Street Journal opinion piece Asness wrote, critical of Buffett’s stand in favor of additional taxes on the wealthy and belief that tax considerations don’t necessarily drive investment decision making. Buffett’s investment in the Burger King Worldwide Inc (NYSE:BKW) deal, providing 25 percent of the financing and involvement in preferred shares, comes as Burger King itself confirmed it is moving headquarters from Miami, Florida to a colder climate north of the US border where tax laws coddle large corporations. Here is the important issue. While attacking Buffett, an elite who is seldom hard questioned by the fawning business media, might appear appetizing, does anyone really know his motivations in the deal? He has not publicly commented.
Why Buffett invested in Burger King?
While the tax inversion motivation could be one reason for Buffett’s investment, another reason could be this is just a plain and simple good deal for both companies beyond the tax inversion. As previously reported in ValueWalk, both Burger King and Tim Hortons Inc. (NYSE:THI) (TSE:THI) purchase and own their real estate to a large degree, sharing a propensity with hedge fund manager Bill Ackman, who also owns Burger King, for real estate deals that deliver revenue regardless of the economic environment. While this is seldom discussed in the mainstream, professional investors have told ValueWalk that increasingly such franchise operations are being evaluated based on their ability to deliver revenue more independent of their same store sales. Another issue that Buffett may have considered is that a significant cross-selling opportunity might exist in similar fashion to other integrated fast food operations such as Pepsi. Or Buffett might just like the tax inversion. Its difficult to know as Buffett is yet to formally comment. My bet is that if he does comment, the strong fundamentals of the deal not widely discussed in the mainstream might be touted, not just talk of a tax inversion.