Burger King In Talks To Acquire Tim Hortons, Move To Canada

The combined company would be the third-largest fast-food chain in the world.

Burger King is in talks to acquire Canadian coffee-and-doughnut chain Tim Hortons — as well as Canadian citizenship — the two companies said this morning.

The statement follows a report Sunday night in the Wall Street Journal saying that the Miami-based Burger King was looking to acquire Tim Hortons as a so-called tax inversion, which could lower its corporate taxes and help the company gain a more favorable treatment on money earned outside the United States. Shareholders of both companies cheered the news, with Burger King up over 14% in early trading to $31.08 and Tim Hortons up almost 19% to $74.69.

The deal would be structured such that a new company would be created, majority owned by the private equity firm 3G Capital, which acquired Burger King in 2010. The remaining stakes would be held by Burger King and Tim Hortons public shareholders.

For Burger King, a deal would be another step in its transformation into a lean, heavily financially engineered company with an ever-smaller retail footprint. While its main competitor, McDonalds, owns about a fifth of its locations, Burger King only owns 52 of its over 13,000 locations, according to data compiled by Bloomberg. Sixty-two percent of its $1.15 billion of revenues in 2013 came from royalties or renewal fees from its franchisees, while most of the remaining revenue came from leases or subleases of property to franchisees.

The companies said in their statement that Burger King's "worldwide footprint and experience in global development" could help "accelerate Tim Hortons growth in international markets."

There are over 13,000 Burger King locations in 100 countries, and about 58% of revenues come from the U.S. and Canada. Companies that pursue inversions typically have sizable revenues from outside the United States and having a different tax home can help those companies avoid the corporate tax hit on money earned overseas. Combined, the companies would have over 18,000 locations and $22 billion in sales across the brands.

While so-called inversion deals, where U.S. companies acquire smaller companies abroad and then move their corporate headquarters, have been common in the pharmaceutical industry this year, a Burger King inversion is likely to draw the most public attention.

The pharmaceutical chain Walgreen's recently scrapped such a deal after it came under withering public and political scrutiny. The Obama administration has been very critical of inversions, with the president describing companies that do them as "corporate deserters who renounce their citizenship to shield profits."

White House press secretary Josh Earnest declined to comment on the proposed deal when asked about it a press briefing. Democratic senator Carl Levin, who proposed a bill in May that would limit the ability of US companies to reduce their tax bills through overseas merger, issued a statement describing the potential inversion as an "example of why Congress can't afford to wait any longer to put a stop to tax dodging through this kind of merger." He added, however, that "there could well be a strong public reaction against Burger King that could more than offset any tax benefit it receives from a tax avoidance move."

Updated with comments from Josh Earnest and Carl Levin

Skip to footer