Warren Buffett is extending financing to Burger King Worldwide Inc (NYSE:BKW) for its takeover of Canadian coffee-and-doughnut chain Tim Hortons Inc. (NYSE:THI) (TSE:THI), the Wall Street Journal reports citing knowledgeable sources.
Burger King’s acquisition of Tim Hortons was announced on Tuesday, August 26th. The combined company will enjoy around $23 billion in total sales, with more than 18,000 restaurants in 100 countries. The new firm will be based in Canada, the largest market of the combined company.
The deal was unanimously approved by the Board of Directors of both companies. Tim Hortons shareholders will receive C$65.50 in cash and 0.8025 common shares of the new company per Tim Hortons share. Given Burger King’s closing stock price as of August 22, 2014, this represents a total value per Tim Hortons share of C$89.32, and given Burger King Worldwide Inc (NYSE:BKW)’s closing stock price as of August 25, 2014, this represents a total value per Tim Hortons share of C$94.05
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Burger King’s tax inversion deal
The new combined fast food corporate entity will be headquartered in Canada, which currently has lower corporate taxes than the U.S.
Tax inversion deals have become popular with a number of American companies over the last couple of years. Tax inversions facilitate U.S. companies in paying lower tax rates by setting up offices in a country with lower tax rates, though such maneuvers have been receiving increased scrutiny from Senate Democrats trying to close the tax loophole.
Buffett would provide about 25% financing
According to reports, Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) will provide roughly 25% of the financing for the deal and will receive preferred shares in the combined entity. The preferred shares are expected to pay out a healthy dividend, though the actual nature of Berkshire’s participation was not clear. The proposed move to shift Burger King Worldwide Inc (NYSE:BKW)’s headquarters to Ontario would make the firm only liable for Canada’s federal corporate tax rate of 15%, well below the top U.S. marginal rate of 35%.
There has been a spate of tax inversion deals so far this year, with Ireland and its 12.5% corporate tax rate a favored destination. With his proposal to about 25% of financing, Buffett is now thrust into the U.S. tax debate.
3G Capital is presently the majority owner of Burger King Worldwide Inc (NYSE:BKW) and after the merger of Burger King with Tim Hortons Inc., 3G Capital would continue to own the majority of the shares in the new combined entity on a pro forma basis. Warren Buffett partnered with 3G last year to buy Heinz, and he has said that he would be happy to work with them again.