Burger King, Tim Hortons In Talks Over Strategic Deal

Burger King Worldwide Inc (NYSE:BKW) is said to be in discussion to buy Canadian coffee and doughnut chain Tim Hortons Inc. (NYSE:THI) (TSE:THI) to establish a fast food powerhouse with a combined market capitalization of about $18 billion.

The deal is expected to leverage Burger King Worldwide Inc (NYSE:BKW)’s expertise in global development to enhance Tim Hortons Inc. (NYSE:THI) (TSE:THI)’s international growth.

Details on the Burger King – Tim Hortons deal

While Burger King Worldwide Inc (NYSE:BKW) has a market value of about $9.6 billion, Tim Hortons Inc. (NYSE:THI) (TSE:THI)’s valuation is about $8.4 billion. That means that the restaurant companies are currently worth about $18 billion together. The combined entity would be the world’s third-largest quick service restaurant, and would be based in Canada, which has lower corporate taxes than the United States.

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If the deal comes to fruition, Burger King Worldwide Inc (NYSE:BKW) and coffee and doughnut chain Tim Hortons are set to operate as standalone brands within this new entity while benefiting from shared corporate services.

Of note, the proposed deal would be structured as a so-called tax inversion transaction to move Burger King’s domicile out of the United States.

String of inversion deals

In recent years, tax inversions have become popular with a variety of American companies. Tax inversions facilitate U.S. companies in paying lower tax rates by setting up offices in a country with lower tax rates. However, such maneuvers have come under criticism recently, and Senate Democrats are trying to close the tax loophole. The increasing interest in the tax inversion deals acquire significance as nearly 50 companies have announced plans to move abroad in the first half of 2014, up from only 29 in the previous two decades.

However, despite the lure of relocating abroad, while unveiling its acquisition of alliance Boots, Walgreen Company (NYSE:WAG), the biggest U.S. drugstore chain, said it would shun inversion and would retain its headquarters in the United States.

Presently 3G Capital is the majority owner of Burger King Worldwide Inc (NYSE:BKW), and post the merger of Burger King with Tim Hortons Inc. (NYSE:THI) (TSE:THI), 3G Capital would continue to own the majority of the shares in the new combined entity on a pro forma basis. The New York-based investment firm acquired the then-struggling Burger King in 2010 for about $3.3 billion and still owns nearly 70% of the firm’s shares, despite taking Burger King back to market in 2012.