Burger King Worldwide Inc. agreed to acquire Tim Hortons Inc. for about C$12.5 billion ($11.4 billion) in a deal that creates the third-largest fast-food company and moves its headquarters to Canada.
Tim Hortons investors will receive C$65.50 in cash and 0.8025 a share of the combined entity for each share they own, the companies said in a statement today. The deal, which is backed in part by Warren Buffett’s Berkshire Hathaway Inc., values each Tim Hortons share at C$94.05, based on Burger King’s closing price yesterday.
The purchase gives Burger King access to a coffee brand with a cult following, which may help boost breakfast sales. Tim Hortons, Canada’s biggest seller of coffee and doughnuts, also lets Burger Kingget into the grocery business by selling packaged coffees at supermarkets in North America. The new combined business would create a fast-food network with $23 billion in sales, including franchisees, and more than 18,000 restaurants in 100 countries.
“There’s value to be extracted and there are international growth opportunities,” said Will Slabaugh, an analyst at Stephens Inc. in Little Rock, Arkansas. “I think it’s going to be a well-received deal.”
The acquisition also moves the merged entity’s global headquarters to Canada to take advantage of lower corporate taxes. When the companies disclosed the talks on Aug. 24, it heightened debate over American businesses shifting their headquarters to other countries in search of lower corporate tax bills. President Barack Obama criticized the practice in July, and his aides said that the administration would take action to stop the trend.
The merger talks sent shares of both companies soaring yesterday. Burger King rose 20 percent to $32.40, the biggest jump since the stock debuted on the New York Stock Exchange two years ago. Tim Hortons climbed 19 percent to C$82.03, reaching a record high.
3G Capital, the investment firm that owns about 70 percent of Burger King, will convert that stake into roughly 51 percent of the new company. Berkshire Hathaway has committed $3 billion of preferred equity financing, according to the statement, which didn’t disclose terms on the stake. Omaha, Nebraska-based Berkshire won’t participate in managing the restaurant business.
3G, which was co-founded by Brazilian billionaire Jorge Paulo Lemann, joined Buffett last year in a $23.3 billion takeover of HJ Heinz Co. Buffett bought half the ketchup maker’s common stock for about $4.25 billion and invested $8 billion for preferred shares that pay a 9 percent annual dividend and gave Berkshire warrants to buy an additional 5 percent stake.
“3G does a magnificent job of running businesses,” Buffett said in May at his company’s annual meeting in Omaha. “We’re very likely to partner with them, perhaps on some things that are very large.”
Burger King, the second-largest U.S. burger chain, has struggled to boost North American same-store sales and compete with McDonald’s Corp.’s breakfast fare. Buying Tim Hortons would giveBurger King a coffee brand that’s coveted by Canadians, as well as some Americans, to help revamp its breakfast lineup.
Burger King also may be in a position to expand Tim Hortons restaurants in the 98 countries where it operates. There may be supply-chain, marketing and administrative cost savings as well.
Within the new parent company, the two chains will remain stand-alone businesses and maintain their current headquarters. Burger King is run from Miami, while Tim Hortons is based in the Toronto suburb of Oakville.
Daniel Schwartz, Burger King’s chief executive officer, will become group CEO of the merged company, as well as remaining head of the fast-food chain. Tim Hortons CEO Marc Caira, meanwhile, will continue to run that chain. Alex Behring, a managing partner at 3G who has served as Burger King’s executive chairman, will continue in that role for the new global company.
Burger King has lined up $12.5 billion in financing to fund the cash portion of the deal, including $9.5 billion from a debt package led by JPMorgan Chase & Co. and Wells Fargo & Co.
Lazard, JPMorgan and Wells Fargo served as Burger King’s financial advisers, while Kirkland & Ellis LLP, Davies Ward Phillips & Vineberg LLP and Paul, Weiss, Rifkind, Wharton & Garrison LLP provided legal counsel. Tim Hortons received financial advice from Citigroup Inc. and RBC Capital Markets. Wachtell, Lipton, Rosen & Katz and Osler, Hoskin & Harcourt LLP served as legal counsel.
Burger King said it was committed to Canada and wouldn’t change the way Tim Hortons operates, aiming to reassure consumers that one of the country’s best-known brands wasn’t in jeopardy.
“Our customers, employees, franchisees and fellow Canadians can all rest assured that Tim Hortons will still be Tim Hortons following this transaction,” Caira said in the statement.