A Whopper is known worldwide, as Burger King is located in 98 countries. In Canada, Tim Hortons is a notorious Canadian coffee and doughnut franchise. It is certainly the most popular coffee chain, which has been keeping Canadians warm in hockey arenas since 1964.
Originally, Tim Hortons was owned by the Canadian hockey player Tim Horton. Unfortunately, he lost his life in a car accident ten years after Tim Hortons was established. Today, Tim Hortons is still operating, and is expected to grow as it is now set to merge with the company that owns Burger King.
The Potential Deal
Tim Hortons has agreed to be bought by 3G Capital, which is the company that owns Burger King. Shareholders now need to vote, but if this deal goes through, it will be the third largest fast food restaurant in the world.
This new potential company will have combined sales of $23 billion and have locations throughout 98 different countries. Shares will be $94, and Tim Hortons will still be based out of Canada. It is a concern that Tim Hortons (which will be bought for $11 billion) will be purchased in order to avoid paying U.S. taxes.
What Does This Mean For Tim Hortons?
A Tim Hortons CEO said that the beloved coffee and doughnut chain will not change due to this new deal. Basically, 3G will have 51% of the new company and will allow Tim Hortons to expand. Tim Hortons is currently in Canada, the United States, and the Persian Gulf. It hasn’t been highly successful outside of Canada, so Burger King may help with global networking.
The business model is not set to change, as community programs will still be run (e.g. children’s foundation and TimBits sports program). Although there will be a merge, the two companies will be run and managed separately. The Tim Hortons head office will remain in Oakville, Ontario, while Burger King will remain in Miami.
Although these two companies will remain independently managed, each business will benefit from the other. Each company can learn from the failures and successes of the other company. This will be beneficial for both parties.
Why Is This Deal Occurring?
As mentioned, many believe that this deal is being discussed in order to reduce taxes. The corporate tax rate in the United States is at a staggering 35%. In Canada, this corporate tax is 15%. Merging with Canadian businesses is becoming increasingly popular regarding American based companies.
Tax inversion allows you to pay lower taxes when you merge with a foreign company. The money that is made outside of the United States can then be transferred without paying addition U.S. taxes. These concerns have been denied, but many are not convinced. It has been said that a global headquarters will be located in Canada because that is where the biggest market is.
Although details are vague regarding the deal itself, a Tim Hortons CEO said that they were not in the market to put themselves up for sale. Burger King approached Tim Hortons, and the deal seemed to benefit both parties. It appears as though Tim Hortons will be able to expand much more efficiently due to this deal. With that being said, Industry Canada will need to approve this deal before it can be finalized.
If you’re Canadian, you may have mixed feelings about what will happen to the beloved Tim Hortons franchise. Although these companies are merging, you will not be finding a Whopper at Tim Hortons anytime soon. There will be more information in the following weeks.