Burger King Worldwide Inc., the second-largest US burger chain, is in talks to buy Tim Hortons Inc. and move its headquarters to Canada, becoming the latest American company to seek a relocation to a lower-tax country.
Burger King, which is majority-owned by 3G Capital, would create the world’s third-largest fast-food chain by merging with Canada’s biggest seller of coffee and doughnuts, the companies said in a statement. Canada’s corporate tax rate is 26.5 per cent, compared with 40 per cent in the US, according to audit, tax and advisory firm KPMG’s website.
The deal threatens to renew debate over American companies shifting their headquarters internationally in search of a lower corporate tax bill. The trend drew criticism last month from President Barack Obama. His aides vowed that the administration would take action to curtail the practice.
3G Capital will own the majority of the shares of the new company, with the remainder held by other shareholders of Tim Hortons and Burger King, according to the statement. The two chains will operate as stand-alone brands, the companies said.
The combined business would have about $22 billion in sales and more than 18,000 restaurants in 100 countries, according to the statement. The deal is subject to negotiation, and Burger King and Tim Hortons don’t plan to comment further until an agreement is reached or discussions are discontinued.
Inversion Surge
Between mid-June and late-July, when Obama began criticizing deals that cut taxes by relocating outside the US, at least five large American companies have announced plans to make such a move - known as an “inversion.” That includes AbbVie Inc. and Medtronic Inc.
Since the start of 2012, at least 21 US companies have announced or completed the deals, comprising almost half the total of 51 such transactions in the past three decades.
Tim Hortons, Canada’s biggest coffee merchant, has about 4,500 restaurants and has been expanding its product lines to boost sales. The restaurant operator posted results this month that beat estimates and said fiscal 2014 profit will top or be at the high end of its target range.
Earlier this month, Burger King reported that revenue fell 6.1 per cent to $261.2 million in the second quarter. Same-store sales in the US and Canada rose 0.4 per cent. The company has been trying to introduce fewer new items to make its kitchens faster and less complex.
Bloomberg News, edited by Hospitality Ireland
