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Burger King throne would move north in Timmy’s merger

(Dave Bedard photo)

The world’s second-biggest burger chain is in talks with Canada’s biggest quick-service chain on a merger into a new Canadian-based company.

Burger King Worldwide and Tim Hortons confirmed their talks Sunday, following a report in that day’s Wall Street Journal.

The U.S. paper reported the Miami-based burger firm plans a “tax inversion” deal to move north, potentially creating substantial tax savings on federal corporate tax and foreign earnings.

Burger King (BKI: NYSE) and Oakville, Ont.-based Tim Hortons (THI: TSX, NYSE) confirmed Sunday a merged company would remain publicly traded and would be headquartered in Canada, being the “largest market of the combined company.”

The two companies stressed Sunday the idea is now in the discussion stage, with “no assurance that any agreement will be reached or that a transaction will be consummated.”

A merged BKI/THI, if formed, would be the third-biggest quick service restaurant company in the world, with about US$22 billion in sales and over 18,000 restaurants in 100 countries.

Rio de Janeiro-based 3G Capital, Burger King’s 70 per cent majority owner since 2010, would still own the majority of shares in the new company, while existing BKI and THI shareholders would hold the remainder.

3G, in Sunday’s release, cited its “demonstrated track record of managing international expansion of iconic brands around the globe.” The company last year formed a consortium with Warren Buffett’s Berkshire Hathaway to take over ketchup firm H.J. Heinz. [Related story]

Tim Hortons and Burger King would each still operate as standalone brands, the companies said, but would benefit from “shared corporate services, best practices and global scale and reach.”

“Iconic brands”

A “key driver” in their talks, the companies said, is the possibility of leveraging Burger King’s “worldwide footprint and experience in global development” to “accelerate Tim Hortons’ growth in international markets.”

The two chains, the companies noted, “each have strong franchisee networks and iconic brands that are loved by their respective consumers.” In Canada alone, Tim Hortons holds about a 42 per cent share of the quick-service restaurant business with 3,453 restaurants, compared to Burger King with 281.

Any deal, if completed, would be set up to “preserve these relationships and deepen the connections each brand has with its guests, franchisees, employees and communities,” the companies said.

Founded in Miami in 1954, Burger King expanded internationally through a series of owners including the Pillsbury Co., Grand Metropolitan, Diageo, and the group of private equity firms which took the company public in 2006. 3G took the company private in 2010, but it was re-listed in 2012 after another investor, Justice Holdings, took a minority stake.

The Burger King system at the end of 2013 included 13,667 restaurants, nearly all owned and operated by franchisees.

The company in 2013 booked net income of US$233.7 million on total revenues of $1.146 billion (based on $16.1 billion in franchises’ sales) up from $117.7 million on revenues of $1.97 billion in 2012. BKI said its drop in total revenue was due mainly to its program to refranchise nearly all of its formerly company-owned restaurants.

Tim Hortons had 4,288 restaurants worldwide as of March 31 last year, including 3,453 in Canada and 808 in the U.S., booking net income of C$428.65 million attributable to THI on $3.26 billion in 2013 sales and franchise revenues, up from C$407.8 million on $3.12 billion in fiscal 2012. About 95 per cent of Tim Hortons restaurants are franchisee-owned and -operated.

The company, founded in Hamilton in 1964 by ex-Toronto Maple Leafs defenceman Tim Horton, was merged into the U.S. burger chain Wendy’s in 1995, but was spun off into a separate publicly-traded firm in 2006. — AGCanada.com Network

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