Tim Hortons, Burger King agree to merger deal

Tim Hortons has agreed to be bought by the company that owns Burger King in a deal that could culminate in the world's third largest fast-food company.

Deal would give current Tim Hortons shareholders about $94 per share

Tim Hortons agrees to Burger King offer

9 years ago
Duration 3:12
$94 a share is the premium price for doughnut king to play second fiddle
Tim Hortons has agreed to be bought by the company that owns Burger King in a deal that could culminate in the world's third largest fast-food company. 
Burger King and Tim Hortons have a firm offer on the table to create the world's third largest fast-food restaurant chain. (David Donnelly/CBC)

The new combined company would be based at the current headquarters of Tim Hortons, in Oakville, Ont. Burger King would continue to maintain its global home in Miami. 

The deal is structured as follows:

  • 3G Capital, the investment firm that owns Burger King, would pay $65.50 in cash for every Tim Hortons share already out there.
  • In addition to that cash, every Tim Hortons shareholder would get 0.8025 shares in the new, as yet unnamed company.
  • Shareholders also would have the right to choose an all-cash or all-stock option.

That would bring the cash value of the deal for current Tim Hortons owners to more than $94 per share. That's 39 per cent higher than the average price Tim Hortons shares have traded at during the month leading up to last weekend, when rumours of a deal emerged.

After gaining 20 per cent Monday, when the two companies confirmed they were in talks, Tim Hortons shares gained another 8 per cent on Tuesday following word of a concrete offer.

The new company would have combined global sales of $23 billion and have 18,000 locations in 98 countries.

"We see no reason we can't bring the double-double to the rest of the world," 3G's Alex Behring said on a conference call discussing the deal with analysts, adding no jobs will be affected at the restaurant level.

International expansion

Tim Hortons CEO Marc Caira told CBC the deal is great news for the company, and for Canada. "There's nothing negative here about Tim Hortons in Canada," he said, adding there are no plans to have the two chains sell each others products — hamburgers in Tim Hortons and Tims coffee in Burger King, for example. "You're not going to see any interaction between the restaurants," Caira said.

Executives from the companies involved also poured cold water on theories that the move was an elaborate tax inversion chiefly designed to bring down Burger King's tax rate. Canada's basic corporate tax rate is about 26 per cent, while the U.S.'s is around 35 per cent.

But Burger King already managed to get its tax rate down to 27.5 per cent last year, company filings show. Tim Hortons paid 26.8 per cent tax in Canada last year, according the its annual report.

"We don't expect our tax rate to change materially" Burker King CEO Daniel Schwartz said on the call. Burger King will continue to pay federal, state and local taxes on U.S. earnings, as will Tim Hortons keep paying Canadian taxes, Schwartz reiterated — several times.

If the deal goes through as is, 3G would still control 51 per cent of the new company. Current Burger King shareholders would own 27 per cent, and current Tim Hortons shareholders would own the remaining 22 per cent.

Although Burger King has roughly twice as many locations as Tim Hortons, the Canadian chain takes in much more revenue from its stores.

Tims says it controls 28 per cent of fast food sales in Canada, including 75 per cent of all coffee and caffeinated beverage sales.

Although he didn't offer details, Schwartz says the combined company plans to pay a dividend — just as both the individual companies currently do.

The boards of both companies have unanimously approved the transaction. Two-thirds of Burger King is owned by 3G, so the deal has been consummated on that end, but Tim Hortons shareholders still have to approve it.

The deal is subject to numerous regulatory and anti-trust hurdles, including the Investment Canada Act. "The transaction ... is structured to bring significant benefits to Canada," Behring said, including the infamous "net benefit" test that has scuppered deals in the past.

Burger King exec will be new CEO

Shares in the new company will list both on the TSX and NYSE. 

Daniel Schwartz, CEO of Burger King, would also become CEO of the new company. Current Tim Hortons CEO Marc Caira would become a director of the new company, as well as its vice-chairman.

The new company's board would include the current eight Burger King directors and three Canadian directors to be appointed by Tim Hortons, including Caira. 

Warren Buffett's company Berkshire Hathaway is helping finance the deal with $3 billion of preferred equity financing, but will not have a role in managing operations.

A look at some of the numbers involved in the proposed burger and coffee tie-up. (Richard Grasley/CBC)