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