Burger King BKW -2.39% Worldwide Inc. agreed to buy Canadian coffee-and-doughnut-chain Tim Hortons Inc. THI.T +8.89% for about $11 billion, confirming plans to move the iconic American brand north of the border under a tax inversion deal.
The relocation of a such a high-profile American brand is likely to elevate the debate over tax inversions at a critical time as U.S. lawmakers look to stem the growing wave of company departures.
Adding a twist to the deal, legendary investor Warren Buffett‘s Berkshire Hathaway Inc. BRKB +0.33% is providing $3 billion in preferred equity financing, throwing him into the center of the debate over U.S. tax policy.
The deal would create the world’s third largest quick-service restaurant company, with about $23 billion in system sales and more than 18,000 restaurants in 100 countries. The new global company will be based in Canada, though each brand will be managed independently after the deal’s completion, the companies said.
“By bringing together our two iconic companies under common ownership, we are creating a global [quick service restaurant] powerhouse,” said Alex Behring, executive chairman of Burger King and managing partner of 3G Capital.
Tim Hortons shareholders will receive C$65.50 in cash and 0.8025 shares of the new company for each share, valuing the restaurant company’s stock at C$94.05 based on Monday’s close. As an alternative, shareholders will be able to choose to receive either C$88.50 in cash or 3.0879 shares of the new company.
The acquisition of Tim Hortons, which is Canada’s largest quick-service chain and has a market capitalization of about $10 billion, would have to win Canadian government approval. That means Burger King, which is controlled by Brazilian private-equity firm 3G Capital Management, would have to show that the deal provides a so-called net benefit to Canada.
Tim Hortons, which today operates in only a handful of countries outside Canada and the U.S., is synonymous with Canada, with more than 3,600 Canadian shops located in strip malls and street corners in both small towns and big cities. It is named after its co-founder, a former defenseman for the Toronto Maple Leafs NHL franchise.
3G Capital will own about 51% of the new company. Berkshire Hathaway, which previously joined with 3G to buy H.J. Heinz & Co. in 2013, won’t be involved in the management or operation of the business.
In order to fund the deal, Burger King has obtained commitments for $12.5 billion of financing for the cash portion, including commitments for a $9.5 billion debt financing package led by J.P. Morgan JPM +0.88% JPMorgan Chase & Co. U.S.: NYSE $59.86 +0.52+0.88% Aug 26, 2014 11:20 am Volume (Delayed 15m) : 3.10M P/E Ratio 15.37 Market Cap $223.19 Billion Dividend Yield 2.67% Rev. per Employee $404,867 60.0059.7559.5059.2510a11a12p1p2p3p 08/26/14 HEARD ON THE STREET: Copper Mi… 08/26/14 Burger King Confirms Deal to B… 08/26/14 United Engineers Sells Car Bus… More quote details and news » and Wells Fargo. WFC +0.38%
The companies said Burger King Chief Executive Daniel Schwartz will become CEO of the new company. Mr. Behring will be executive chairman, and Tim Hortons CEO Marc Caira will be vice chairman. Mr. Schwartz and Mr. Caira will continue to serve as CEOs of their respective companies during the transition period, the companies said.
Shares of the new company will be traded on the New York Stock Exchange and the Toronto Stock Exchange.
Miami-based Burger King, founded in 1954, operates in about 14,000 locations in nearly 100 countries. The chain, which 3G Capital acquired in 2010, has become a franchiser that collects royalty fees from its franchisees—not an operator of restaurants. Since the 3G Capital acquisition, Burger King has significantly increased its presence in Europe, the Middle East, Asia and Latin America.
In an inversion, a U.S. firm relocates—usually through a merger with a smaller company—to a country where tax rates and rules are perceived to be friendlier, but it typically continues to be managed from the U.S.
original article via: WSJ