By Dr. David Kass PhD, Harvard University

When Burger King’s (BKW)  acquisition of Tim Horton’s (THI) closes on December 12, Berkshire Hathaway (BRK.A, BRK.B) will purchase $3 billion of 9% preferred shares and receive a warrant to purchase 1.75% of the common shares of the combined company at an exercise price of $0.01 per common share.  Berkshire has informed Burger King that it intends to exercise the warrant promptly following the closing of the transaction.  Berkshire will then own 8.4 million shares with a current market value of about $275 million.

Although the preferred shares will result in Berkshire receiving annual dividends of $270 million, approximating the current value of its common shares of the merged company, Berkshire’s “penny” warrants are atypical compared to its financing in recent years of Goldman Sachs (GS), General Electric (GE), Dow Chemical (DOW), and Bank of America (BAC).  In each of the latter deals, Berkshire either waited several years (GS and GE) to convert its warrants or has not yet converted (DOW and BAC).  The conversion of Berkshire’s penny warrants requires a relatively small investment of only $84,000 for the 8.4 million shares of the merged company’s common shares.  The new company will be named Restaurant Brands International, have a ticker symbol of QSR, and trade on the New York Stock Exchange.

I am quoted in an Omaha World-Herald article (December 10) on this topic:

“The common shares will be highly marketable securities, but I don’t see Buffett selling them anytime soon,” said David Kass, a University of Maryland business professor and Berkshire shareholder. “Some people may say the shares are topped out, but next time Berkshire reports its holdings, I think we will see that Buffett does not think that.”

The entire article is available at:

http://www.omaha.com/money/burger-king-deal-to-bring-berkshire-quick-gain/article_10693b8a-d0c6-5d00-8277-89026a8570ec.html

Berkshire To Convert Burger King/Tim Horton’s Warrants on December 12
Source: Wikimedia Commons