Burger King Worldwide Inc. could purchase Tim Hortons in a massive deal that would create the world’s third largest fast food restaurant provider and relocate its headquarters to Canada to become a Canadian company.
The Wall Street Journal reports that the move is part of an attempt to avoid high American taxes that would have Burger King pay 35 per cent corporate tax to the United States government. If the company is based in Canada, the company would only pay a 15 per cent tax.
American legislators have termed the corporate tax flight as a “tax inversion scheme.” It allows companies to avoid a big American tax bill on their foreign earnings, which in turn reduces the revenues of the U.S. treasury.
The acquisition of the Canadian-based doughnut and coffee company and relocation of the entity to Canada might also be a strategy to appease the Canadian federal government. The purchase could be blocked through the Investment Canada Act – a foreign direct investment policy that enables lawmakers to block a merger if it is not in the best interests of Canada.
Tax inversion schemes have recently gained much attention in American media, especially after drug retailer giant Walgreens made public a proposal to merge with European drug store chain Alliance Boots and relocate its headquarters to Switzerland. Earlier this year, New York-based pharmaceutical Pfizer also proposed a $100-billion takeover of British-based AstraZeneca for the same relocation reasons.
However, both U.S. inversion plans were canceled amidst widespread criticism.
In the last decade alone, there have been 47 instances of major American corporations using inversion.
If the merger goes through, both companies will continue to operate independently under the same parent company based in Canada. It would provide both brands with the ability to compete against the two largest fast food providers in the world: McDonald’s, which has gained a major footing in coffee in the last few years, and Yum Brands’ Taco Bell and KFC.
This will be Tim Hortons’ largest shift in corporate structure since 2009 when it was repatriated into a Canadian company.
In 2006, after more than a decade of ownership, it parted ways with U.S. fast food chain Wendy’s when it became apparent that the doughnut and coffee chain had become self-sufficient. The company also went public, trading as THI in both the Toronto Stock Exchange and the New York Stock Exchange.
Meanwhile, Brazilian-based 3G Capital has been the majority owner of Burger King since 2010 and has made major strides to revive the company’s fortunes. It will also be the majority owner of the new parent Canadian company should the merger receive approval.
Tim Hortons currently possesses a market value of approximately $8.4-billion while Burger King’s value is about $9.6-billion. When merged together, the new company could be worth around $18-billion with more than 17,000 restaurants worldwide including 13,000 Burger King locations, which are virtually all franchise restaurants except for 52 that are corporately owned, and 4,300 Tim Hortons locations.
Feature Image: Burger King via Shutterstock