Tim Hortons-Burger King merger approved by Competition Bureau
Canada’s Competition Bureau says that Burger King’s plan to buy Tim Hortons does not pose a competitive threat to the fast food industry.
The antitrust watchdog issued a No Action Letter (NAL) Tuesday, confirming that it reviewed the proposed transaction and concluded that it will not, at this time, “challenge it before the Competition Tribunal under the mergers provisions of the Competition Act”.
Burger King’s US$11 billion offer for Canada’s iconic coffee chain isn’t a done deal yet — the acquisition still requires approval by Tim Hortons shareholders, and is subject to a review under the Investment Canada Act.
Burger King and Tim Hortons have expressed confidence that the merger announced on Aug. 26, 2014, will close by the end of the year or early in 2015. Company officials say the new, unnamed company, with its estimated $23 billion in system sales, would become the world’s third-largest quick service restaurant comprising more than 18,000 restaurants in 100 countries.
Tim Hortons president and CEO Marc Caira has promised that the beloved doughnut chain will not change and that the new company will be a “global powerhouse.”
“Tim Hortons will still be Tim Hortons. We will still be the company of the Timbit and of the Double Double,” Caira said in a teleconference following the merger announcement.
The corporate headquarters of the new entity would be based in Canada, but Burger King’s operations will remain in Miami. The transaction is called a corporate inversion, a manoeuvre popular among companies looking to lower their tax bills.
Last month, the U.S. Treasury Department announced new rules to crack down on tax inversion deals, causing market uncertainty over whether the Burger King-Tim Hortons deal would still go ahead as planned.
Officials at both Burger King and Tim Hortons have said the merger will proceed as it’s driven by international growth possibilities, and not the desire to take advantage of Canada’s lower tax rates. Burger King CEO Daniel Schwartz has stressed that, because Burger King’s headquarters will remain in Miami, the company will continue to pay federal, state and local taxes on its U.S. income. Because of its overseas business operations, the company’s combined tax rate will remain in the mid-20s, which is consistent with Canada’s corporate tax rate, according to Schwartz.
Investment firm 3G Capital, which has a 70 per cent equity stake in Burger King, will own approximately 51 per cent of the new company and Warren Buffet’s Berkshire Hathaway has committed $3 billion of preferred equity financing, according to company officials.
Quick Facts
• Founded in 1954, Burger King is the second largest fast food hamburger chain in the world. Burger King operates in approximately 14,000 locations in 98 countries and territories worldwide, including 300 restaurants in Canada.
• Tim Hortons is one of the largest publicly-traded quick service restaurant chains in North America based on market capitalization, and the largest in Canada. As of June 29, 2014, Tim Hortons had 4,546 system-wide restaurants, including 3,645 in Canada.
The Competition Bureau, describes itself as an independent law enforcement agency which ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace.
