Tim Hortons Takeover Bad Deal For Canadians?

Tim Hortons Takeover Bad Deal For Canadians?

A recent report from the Canadian Centre for Policy Alternatives suggests that Burger King Worldwide Inc (NYSE:BKW)’s takeover of Canadian coffee and donut chain Tim Hortons Inc. (NYSE:THI) (TSE:THI)’s is likely to produce a number of negative consequences for the citizens of Canada. Author Natasha Luckhardt argues that while the Burger King – Tim Hortons merger might have been a good financial deal for both parties (including the Canadian shareholders of Tim Hortons), the deal was not in the best interests of the citizens of Canada.

In the report, Luckhardt highlights five ways in which the Burger King Worldwide Inc (NYSE:BKW) – Tim Hortons Inc. (NYSE:THI) (TSE:THI) merger is a raw deal for Canadians: imminent mass layoffs, corporate tax losses, squeezing small businesses, higher prices and lower quality food.

How Warren Buffett Went From Hating To Loving Banks

Berkshire Hathaway Warren BuffettSince the financial crisis, Warren Buffett's Berkshire Hathaway has had significant exposure to financial stocks in its portfolio. Q1 2021 hedge fund letters, conferences and more At the end of March this year, Bank of America accounted for nearly 15% of the conglomerate's vast equity portfolio. Until very recently, Wells Fargo was also a prominent Read More

Mass layoffs

Luckhardt notes that Tim Hortons new owners have a habit of carrying out mass layoffs after they acquire a target: “3G Capital’s obsessive cost cutting has frequently resulted in mass layoffs at the companies it acquires. Hundreds of Canadian workers at Heinz and Labatt plants have lost their jobs in recent years after takeovers by 3G Capital and its founders. Just this year, 3G Capital oversaw the closing of a Heinz plant in Leamington,Ontario, costing 740 jobs. If 3G Capital follows its pattern, hundreds of Tim Hortons jobs in Canada could be eliminated. Under one estimate, the number of layoffs of Tim Hortons corporate employees could reach over 700.”

Tim Hortons Burger King layoffs

Tim Hortons’ corporate tax losses

Luckhardt also notes that the way the deal is structured means the new combined entity will also pay much less taxes. “As was the case with 3G Capital’s past deals, the large amount of debt involved in the takeover will have significant negative tax consequences. The takeover has the ability to reduce Tim Hortons Inc. (NYSE:THI) (TSE:THI)’s annual Canadian taxes by between C$71 and C$133 million, or between C$355 and C$667 million in the first five years. Based on past performance, 3G Capital is also likely to pursue other tax avoidance strategies.”

Tim Hortons Tax Liability

Tim Hortons Tax rates

Squeeze on small businesses

Given the fact that most Tim Hortons franchisees are small-business people (average owner operates three or four stores), the merger is also unlikely to be good for them based on the current Burger King business model. Luckhardt explains: “3G Capital has shifted substantial cost and risk onto Burger King franchisees and entered into preferential deals with large master franchisees.”
Tim Hortons capital expenditure

Higher prices and lower quality food

Also of note, it seems that the quality of products at firms taken over by Burger King Worldwide Inc (NYSE:BKW)’s owners seems to slip. Luckhardt offers her take on the situation: “When 3G’s founders purchased the Budweiser and Beck’s brands, among others, consumers noticed lower quality and higher prices. If 3G Capital follows a similar model at Tim Hortons Inc. (NYSE:THI) (TSE:THI), Canadians will end up paying more for lower quality donuts and coffee.”

See the full report here Trouble_Brewing

No posts to display