Burger King to Buy Tim Hortons for $11.4 Billion

MICHAEL J. DE LA MERCED
AUGUST 26, 2014
Burger King Worldwide agreed on Tuesday to buy the Canadian restaurant chain Tim Hortons for about $11.4 billion, creating one of the biggest fast-food operations in the world – with a little help from Warren E. Buffett.
As part of the transaction, however, the American burger giant will move its home to Canada, where the combined company’s biggest market will be.
Under the terms of the deal, Burger King will pay 65.50 Canadian dollars in cash and 0.8025 of one of its shares for each Tim Hortons share. That amounts to about 94.05 dollars a share, or $85.78 a share, based on Burger King’s closing price on Monday.
The combined company will have 18,000 restaurants in 100 countries, and $23 billion in annual revenue.
But while Burger King will relocate north of the border, raising concerns about yet another company moving abroad to reduce its tax bill, the switch in corporate nationality appears more aimed at appeasing Canadian regulators wary of a foreign company buying a national icon like Tim Hortons. In fact, Burger King is expected to save a little bit on taxes through the so-called corporate inversion, rather than enjoy a huge reduction, according to people involved in the transaction.
The two companies emphasized that each would continue to be run from its current home base, with Tim Hortons operated out of Oakville, Ontario, and Burger King from Miami. Neither is altering their franchisee agreements or business models.
And the two pledged to draw from Tim Hortons’ ranks of executives to help staff the new parent company. Marc Caira, the Canadian chain’s chief executive, will become vice chairman and oversee global strategy and business development. Daniel S. Schwartz, Burger King’s chief executive, will hold onto that title at the newly combined company.
3G Capital, the Brazil-based investment firm that controls Burger King, will retain majority control of the combined company, with a 51 percent stake. Alex Behring, 3G’s managing partner, will be executive chairman at the merged company.
“Our combined size, international footprint and industry-leading growth trajectory will deliver superb value and opportunity for both Burger King and Tim Hortons shareholders, our dedicated employees, strong franchisees, and partners,” Mr. Behring said in a statement. “We have great respect for the Tim Hortons team and look forward to working together to realize the full potential of these two extraordinary businesses.”
Help financing the transaction will come from one of 3G’s biggest admirers, Mr. Buffett. Berkshire Hathaway, run by Mr. Buffett, will buy $3 billion worth of preferred shares in the new company. Terms were not disclosed, but the preferred shares will pay an annual dividend of about 9 percent, according to a person briefed on the matter.
As with H.J. Heinz, the last deal on which 3G and Berkshire Hathaway collaborated, Mr. Buffett will not have a hand in managing or operating the new business.
Burger King will also draw on $9.5 billion of committed debt financing from JPMorgan Chase and Wells Fargo.
Burger King was advised by Lazard, JPMorgan, Wells Fargo and the law firms Kirkland & Ellis; Davies Ward Phillips & Vineberg; and Paul, Weiss, Rifkind, Wharton & Garrison.
Tim Hortons was advised by Citigroup, the Royal Bank of Canada and the law firms Wachtell, Lipton, Rosen & Katz and Osler, Hoskin & Harcourt.