Sunday, August 31, 2014

Tim Horton's and Burger King

On Tuesday August 26, Burger King and Tim Horton's announced a take over of Tim Horton's by Burger King for a tune of 12.5 Billion dollars. The shares of Tim Horton's have went up over 20% when this deal was announced but have fallen a little since then.

The new company, which will be headquartered in Canada, is planning to operate Tim Horton's and Burger King as separate restaurants and not sell each other products. Currently, Burger King is headquartered in Miami, Florida and majority owned by 3G capital.   With the combined company becoming a Canadian Corporation, there will be tax savings as Canada's corporate tax rates are lower than the US.  This is a hot topic right now in the media. When a US corporation takes over a company in a foreign country, they can become a corporate entity in that foreign country and therefore not pay US corporate taxes. There are various people in the media say that the savings will not be that noticeable. 

Burger King has struggled over the years with competition from other restaurants in the fast food industry and the trend towards people choosing to try to eat more healthy food choices.  I have noticed over the last decade that the quality of Burger King food as gone down hill from what it used to be.  Burger King has also struggled in the breakfast part of their business competing for customers who like their morning coffee and such.  Tim Horton's always as long line ups in the morning inside the store and the drive thru as people must have their morning coffee.

Tim Horton's has struggled over the years to gain traction in the United States.  Their attempt to expand in the north eastern part of the United States did not go as well as planned.  Tim Horton's has to compete with various competitors like Starbucks and Krispy Cream Donuts who were already thriving in this marketplace.  Tim Horton's have stated that there is not much room for growth for them in Canada as they are saturated coast to coast.  I believe Tim Horton's would due better if their donuts were made fresh from scratch in their stores like they use to be prior to 1995.  1995 is the year Wendy's acquired Tim Horton's , who later divested themselves of Tim Horton's in the mid 2000's.

With Burger King and Tim Horton's merger, both companies say this is a win win for both of them. This gives Tim Horton's access to a network of franchisees who might decide to open Tim Horton restaurants also.  This will allow expansion into the US at a more faster pace.  With the merger, this allows Burger King to gain traction in the breakfast part of the restaurant . 

 "3G Capital will purchase the company at $65.50 per-share; existing shareholders will receive $65.50 in cash and 0.8025 shares in the new holding company per-share—all-cash ($88.50) and all-shares (3.0879) options will also be available. 3G Capital (which currently holds a 71% majority stake in Burger King) will hold a 51% majority stake in the new company, Tim Hortons' existing shareholders will own 22%, and Burger King's will own 27%" - source Wikipedia

As a shareholder of Tim Horton's, which you can read about here,  I could sell my shares now or wait. If I decide to wait, there are 3 options available to me as a a shareholder. These options as follows:
  1.  $65.50 in cash and 0.8025 shares in the new holding company. 
  2. All cash at $88.50 per share
  3. All shares option of 3.0879 shares in the new company.
 Disclosure: Currently still own THI

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     I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.  Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk

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