Aug 262014
 

Looks like a merger is on the menu for Burger King 🙂 It’s currently in talks to merge with Canadian company Tim Hortons and move its headquarters up here to Canada 😀 Tim Hortons is a quick service coffee chain that has a strong Canadian identity. Here’s a drive thru window at a typical Tim Hortons.

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Last year I blogged about buying some Tim Hortons shares and how investing in the coffee industry is the best idea ever! Thankfully my investment paid off because each share today is worth about 62% more than when I purchased them. Tim Hortons’ performance has beaten the overall stock market index in both Canada and the U.S. 🙂

If the acquisition is successful Burger King and Tim Hortons would continue to operate as individual franchises. You won’t find Timbits in your Whopper, and you won’t be offered fries with your coffee, haha 😆

The merger would benefit both companies. Right now Tim Hortons sells most of its coffee in Canada because it faces tough competition in the U.S. from Starbucks and Dunkin’ Donuts. But Burger King is already established in the U.S. and also has locations in Latin America and Europe, so Tim Hortons can use those valuable business channels to expand its brand awareness, and gain better access to global markets. Meanwhile Burger King would benefit from the high margin coffee business and also save money via tax inversion.

Tax inversion is when a U.S. company that has large overseas markets moves its main corporate office into a lower tax country. This allows the company to reposition itself as a foreign corporation so it can return foreign profits to stockholders without double taxation. This means if the merger is successful Burger King will get to pay a lower income tax, which will leave more after tax profits for its shareholders 😀

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This is great news for Canadians because it will create jobs in Ontario where the new headquarters will be. Burger King will essentially renounce its U.S. citizenship and become incorporated as a Canadian company 🙂

This is why it’s important to buy shares or ownership in a business. Company boards and CEOs spend all day hiring the best lawyers and accountants to discover creative new ways to make money for their shareholders. Individuals like you and I don’t have the resource, time, or energy to create vast amounts of wealth. But in just one trading session yesterday Tim Hortons shares rose 19%, and Burger King shares rose almost 20%. Large corporations have some of the smartest people working for them trying to maximize value and growth. We don’t need to be smart to get rich. We just need to own those corporations 🙂

Even Warren Buffett is getting in on this business deal. Buffett is extending financing to Burger King for its planned takeover of Tim Hortons. If the Oracle of Omaha is giving his blessing for the merger then it must be a good investment right? 😉

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But it’s not as easy as rolling up the rim to win. We must consider the risk of government intervention 😐 The Canadian government has stopped many foreign takeovers before. And in the U.S. tax inversion is a hot political issue. The IRS loses $700 billion of tax revenue each year due to many other companies already using this loop hole to pay lower corporate taxes than they should. President Obama has condemned this business practice to be “unpatriotic” and the White House has been calling on congress to prevent future tax inversion deals like this from happening. Talk about a taxing situation 😕

For Tim Hortons or Burger King shareholders, just sit back and enjoy the ride 🙂 If the acquisition succeeds Tim Hortons shares will probably go higher and then most likely be converted into Burger King shares. For example if Burger King is $30 per share and Tim Hortons is $90 per share at the time of merger then each THI share you own will be replaced by three BKW shares. If nothing comes out of this deal at least you still own a profitable company (^_^)

For Tim Hortons employees I wouldn’t expect anything major but maybe you’ll receive better health benefits, or Burger King discounts.

For investors thinking about whether Tim Hortons is still a good buy today, it depends on what you think the outcome will be. If the deal goes through then Tim Hortons shares will most likely increase further. But if the negotiations fail then both companies would be considered overvalued today. Will Burger King and Tim Hortons get to have it their way? I guess we will have to wait and see 😀

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Random Useless Fact:
Personalized license plates in Ontario costs $250 to 340 each.

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freedom 35Paul NLiquid IndependenceNo More WafflesMoney Pincher Recent comment authors
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Phil
Guest

It will be interesting to see what happens to Wendy’s here too, as in Ontario anyways, there are many shared locations of Timmies and Wendy’s… I personally enjoy BK from time to time, so I’m good with it ;). Have not owned any THI, directly in the past, so oh well missed some good uptick on that one… Now interestingly last time we saw higher profile mergers in the media, which seem to be on the upswing, the markets turned negative… a foreboding perhaps 😉 – Cheers.

Asset Grinder
Guest

Hey u recoo THI to me. Not too shabby up 50%. Who nows Canadian government might shoot this merger down to protect our national identity lol. We will see how this pans out!

debt debs
Guest

Thanks for explaining it in donuts and cents. Kudos on being a stockholder. You can have it your way after all!

Lynx
Guest

I remember your post on buying Tim Hortons and the increase in coffee consumption. I guess Burger King is getting in on the coffee act too 😀

Tawcan
Guest

I could see the US government putting in a regulation to prevent companies from doing this.

Ben Morrison
Guest

The tax inversion wont work… they discussed that on the Exchange last night, the 15% is only federal tax, the net tax rate would only be about 1% lower here…

Investing Pursuits.
Guest

I believe Tim Horton’s thinks this will help them grown in the US as they believe they do not have much room for expansion in Canada. The major issue I believe that they are not catching on in the states is that the donuts are not made fresh in the stores. The donuts are made frozen in a distribution plant now ever since Wendy’s bought them in 1995. Ron Joyce said he would not sold the company if he knew they were going to make the donuts in a distribution plant

Wendy’s and TIm Horton’ still share the same building for some of their stand alone locations.

Burger King is not very poplar like it used to be.. The quality of their food as gone way down and I heard they have the most amount food poisonings for the fast food restaurants..

Disclosure: own THI

Finance Journey
Guest

So glad that I own some Timms shares. My portfolio gained more than $1000 on August 25 with this news.

What is your plan? are you going to cash out or accept new company shares to reduce tax?

Happy investing!

Money Pincher
Guest

It’s about time a US company merge with a Canadian one!

Maybe Timmies was looking for a burger joint? I remember seeing Wendy’s and Tim Hortons sharing the same space all the time, Recently I have seen the Wendy’s that were next to Timmies close down so don’t know if that has anything to do with Burger King,

No More Waffles
Guest

Sounds like you made an awesome deal by buying Tim Hortons last year, congrats! 🙂

On the topic of tax inversion: it’s been highly debated in Europe for years already. Currently Belgium is a tax haven for multinational companies. The French Bernard Arnault relocated his holding to a Belgian shadow company to avoid French taxes and Belgian taxes at the same time.

I don’t think one country can save this issue, but governments will have to start working together to avoid these loopholes. However, if not even the EU is able to pull some weight on an economic issue of this size it’s highly unlikely that other countries can as a group.

Paul N
Guest
Paul N

I think it’s unpatriotic to waste taxpayers money. Once governments streamline their own dysfunctions, they can look at companies that provide jobs to people even if low paying (whatever happened to the saying “a job is a job”). The US has one of the highest corporate tax rates in the world. Why would anyone blame them for trying to legally avoid taxes? We all do that. Obama is playing a political game by saying that, nothing more. Making headlines to catch the interest of the low information voters.

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[…] Corporate mergers. – Mergers and acquisitions worldwide totaled $4.8 trillion in 2015, a new record. This may not be a big deal to some, but it has real implications for stock investors. For example, it’s how I made a large profit when Burger King bought Tim Hortons. […]