Burger King Mulls Tim Hortons Deal in Tax-Saving Canada Move

Image: Burger King Mulls Tim Hortons Deal in Tax-Saving Canada Move Burger King headquarters in Miami. (Joe Raedle/Getty Images)

Monday, 25 Aug 2014 07:57 AM

 

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Burger King Worldwide Inc., the second-largest U.S. burger chain, is in talks to buy Tim Hortons Inc. and move its headquarters to Canada, becoming the latest American company to seek a relocation to a lower-tax country.

Burger King, which is majority-owned by 3G Capital, would create the world’s third-largest fast-food chain by merging with Canada’s bigger seller of coffee and doughnuts, the companies said in a statement. Canada’s corporate tax rate is 26.5 percent, compared with 40 percent in the U.S., according to audit, tax and advisory firm KPMG’s website.

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The deal threatens to renew debate over American companies shifting their headquarters internationally in search of a lower corporate tax bill. The trend drew criticism last month from President Barack Obama. His aides vowed that the administration would take action to curtail the practice.

3G Capital will own the majority of the shares of the new company, with the remainder held by other shareholders of Tim Hortons and Burger King, according to the statement. The two chains will operate as stand-alone brands, the companies said.

The combined business would have about $22 billion in sales and more than 18,000 restaurants in 100 countries, according to the statement. The deal is subject to negotiation, and Burger King and Tim Hortons don’t plan to comment further until an agreement is reached or discussions are discontinued.

Inversion Surge

Between mid-June and late July, when Obama began criticizing deals that cut taxes by relocating outside the U.S., at least five large American companies have announced plans to make such a move, known as an “inversion.” That includes AbbVie Inc. and Medtronic Inc.

Since the start of 2012, at least 21 U.S. companies have announced or completed the deals, comprising almost half the total of 51 such transactions in the past three decades.

Tim Hortons, Canada’s biggest coffee merchant, has about 4,500 restaurants and has been expanding its product lines to boost sales. The Oakville, Ontario-based company’s stock rose 2.8 percent to a record C$68.78 on Aug. 22, the most recent trading day. The restaurant operator posted results this month that beat estimates and said fiscal 2014 profit will top or be at the high end of its target range.

Earlier this month, Burger King reported that revenue fell 6.1 percent to $261.2 million in the second quarter. Same-store sales in the U.S. and Canada rose 0.4 percent. The company has been trying to introduce fewer new items to make its kitchens faster and less complex.

Burger King rose 1 percent to $27.11 at the Aug. 22 close in New York for a gain of 19 percent this year. Its shares rose 4 percent to the equivalent of $28.23 in German trading at 9:44 a.m. Frankfurt time.

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Stock Debut

The plan to move to Canada follows Burger King’s debut on the New York Stock Exchange in 2012. The chain had been taken private in 2010 by 3G, a New York investment firm, which got $1.4 billion in cash from the public offering and remains the majority shareholder with a 70 percent stake.

U.S. fast-food restaurants are struggling with shaky consumer confidence and steep competition, adding pressure to find ways to alleviate the burden. Burger King has been trying to draw customers with value deals, such as a two-sandwiches- for-$5 offer, as well as some new limited-time fare including chicken fries.

© Copyright 2014 Bloomberg News. All rights reserved.

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