Burger King To Buy Tim Hortons, Move To Canada

(RTTNews) - Burger King Worldwide, Inc. (BKW) has agreed to acquire Canadian coffee and dough-nut chain Tim Hortons, Inc. (THI, THI.TO) in a deal that creates the world's third-largest quick services restaurant company that will be based in Canada.

However, both Burger King and Tim Hortons will continue to operate after the closing as standalone, independent brands. Media reports indicated the value of the deal to be about $11.4 billion.

Billionaire investor Warren Buffett's Berkshire Hathaway Inc. (BRK-B, BRK-A, BRKa) will help to fund the deal, but will only be a financing source and will not have any participation in the management and operation of the business. Berkshire Hathaway has committed $3 billion of preferred equity financing.

Under the terms of the deal that has been approved by the boards of directors of both companies, Tim Hortons' shareholders will receive C$65.50 in cash and 0.8025 common shares of the new company for each Tim Hortons share held by them.

Based on Burger King's closing stock price as of Friday, August 22, 2014, this represents total value per Tim Hortons share of C$89.32. Based on Burger King's closing stock price as of Monday, August 25, this values each Tim Hortons share at C$94.05.

Upon completion of the transaction, each outstanding common share of Burger King will be converted into 0.99 of a share of the parent company and 0.01 of a unit of a newly-formed Ontario limited partnership controlled by the new parent company.

However, holders of Burger King common stock will receive the right to elect to receive only partnership units in lieu of common shares of the new parent company.

The combined entity would have about $23 billion in system sales and over 18,000 restaurants in 100 countries worldwide, with two independent brands.

The deal is expected to be structured as a so-called 'tax inversion' deal and help Burger King to shift base to Canada, thereby saving it from paying high U.S. corporate taxes.

U.S. companies are increasingly looking at inversions as an option to escape the high rate of corporate taxes in the U.S., among the highest in the world. The statutory corporate tax rate in the U.S. is currently 35 percent, while it is reportedly between 14 to 25 percent in Canada.

Burger King has obtained commitments for $12.5 billion of financing to fund the cash portion of the transaction, including commitments for a $9.5 billion debt financing package led by JP Morgan and Wells Fargo.

Tim Hortons' current headquarters in Oakville, Ontario will continue to be the global home of the Tim Hortons business, while Burger King's current headquarters in Miami, Florida will continue to be the global home of the Burger King business. The shares of the new parent company are expected to be listed both on the New York and Toronto stock exchanges.

Alex Behring, executive chairman of Burger King and managing partner of 3G Capital, said, "By bringing together our two iconic companies under common ownership, we are creating a global QSR powerhouse. 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."

Brazilian private equity firm 3G Capital Management will retain all of its investment in Burger King by converting its roughly 70 percent equity stake in Burger King into equity of the new company.

On a pro forma basis, 3G Capital is expected to own about 51 percent of the new company, with the balance of the common shares to be held by current public shareholders of Burger King and Tim Hortons.

At the time of closing, Alex Behring will lead the new global company as executive chairman and director. Marc Caira, president and CEO of Tim Hortons, will be appointed vice-chairman and a director, focused on overall group strategy and global business development.

Daniel Schwartz, CEO of Burger King, will become Group CEO of the new company, with overall day-to-day management and operational accountability. The new company's board will include the current eight directors of Burger King and three directors to be appointed by Tim Hortons, including Caira.

Caira and Schwartz will continue as the CEOs of Tim Hortons and Burger King, respectively, through the transition period. Additional executives in the new global company structure will be identified from Burger King and Tim Hortons during the transition period and announced at the time of closing.

BKW is trading at $32.75, up $0.35 or 1.08 percent on a volume of 5.62 million shares, while THI is trading at $81.77, up $7.05 or 9.44 percent on a volume of 4.36 million shares.

On the Toronto stock exchange, THI.TO closed Monday's trading at C$82.03, up C$13.25 or 19.26 percent on a volume of 5.98 million shares.