Warren Buffett’s Involvement Protects Burger King Inversion Deal With Tim Hortons
An inversion deal of epic proportions such as the merger of Tim Hortons Inc. (TSX, NYSE: THI) and Burger King Worldwide Inc. (NYSE: BKW) to create a $23 billion behemoth based in Canada should have been enough to get the protectionists screaming bloody murder.
But the reaction to Burger King becoming a Canadian company has been muted, as compared to the outrage expressed when Walgreen and Pfizer and other such large companies tried their own inversions.
This could be because it’s just a hop north to Canada instead of a long swim across the Atlantic to Europe. There’s also the fact that this merger is not just about saving taxes by merging with a smaller company.
It’s more of a marriage of equals, since the new merged entity with 18,000 restaurants in 100 countries enhances the reach of both parties to the merger and allows them to continue growing their unique brands while leveraging each others’ strengths in the international market.
Secondly, Burger King isn’t going to save billions in taxes by paying $11 billion for coffee and doughnuts and changing their on-paper corporate headquarters to Canada.
In fact, both companies have an effective tax rate of around 27 percent, and the merger isn’t going to make that big a difference in taxes to either of them.
3G Capital, the Brazilian investment company which owns Burger King, will continue to hold a 51 percent majority stake in the merged entity.
The Tim Hortons headquarters in Oakville, Ontario will continue to be the global home of the Tim Hortons business even after it becomes a part of Burger King. And Burger King’s headquarters in Miami, FL will in effect continue to be the operational global home of the Burger King side of the business.
But all the anger towards corporations ditching America can’t be forgotten just because this deal is happening close to home in Canada and it seems more sensible than some of the other recent merger proposals that were purely tax inversions.
One of the main reasons for the muted criticism is the involvement of Warren Buffett. Berkshire Hathaway is reportedly putting up $3 billion to help finance the merger through preferred shares.
These large corporate mergers usually send the stock of the acquired firm soaring, while the buyer’s share price drops a bit because of concern over the huge outflow of capital and additional debt.
However, in this case, shares of both Burger King and Tim Hortons soared over 20 percent. Some of the credit for investors’ unusual confidence in the value of the deal can be attributed to Buffett’s involvement.
More importantly, Buffett is looked upon as an investor who cares about the American economy more than profits, and if he’s got no problems supporting the Burger King-Tim Hortons deal, then well…this poutine can’t be that bad a whopper.
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