Burger King and Tim Hortons are teaming up in a US$11-billion deal that will allow the fast food companies to grow in the U.S. and internationally, but promises no changes to Canadians' morning coffee.
"One of the key value drivers of this transaction is the potential to significantly accelerate Tim Hortons' international growth potential, like we did with Burger King," Alex Behring, executive chairman of Burger King and managing partner at 3G Capital, said during a call with investors to discussed the deal Tuesday.
"By leveraging our master franchise joint venture model, our network of global partners and the vast experience of our global management and global development team members, we see no reason why we can't bring the double-double to the rest of the world."
The deal comes just over a day after both sides confirmed they were in talks, a possibility which sent their stock surging and created a flurry of speculation about what the combination may mean for the burger and doughnut chains.
Both sides were clear Tuesday that the focus of the deal was growth, given that it will create the world's third-largest quick service restaurant company, with about $23 billion in system sales and more than 18,000 restaurants in 100 countries.
"This very clearly aligns with those objectives and priorities that we established, and we clearly said that things like the U.S. for us was a must-win battle, we clearly said that the international markets for us were untapped potential, and certainly this new relationship will allow us to move much quicker as a combined organization than we felt we could move ourselves," Tim Hortons president and CEO Marc Caira said.
"This transaction will not only allow us to preserve our rich Canadian heritage, but it will allow us to bring even more meaningful benefits to Canada in the long run."
The company has been owned by a large U.S. chain before, when it was purchased by Wendy's International Inc. in 1995. It was spun-off from Wendy's in 2006.
No major changes are expected to the actual brands, and Oakville, Ont., will remain the headquarters of Tim Hortons (TSX:THI) and Miami will remain the home base of Burger King.
When asked Tuesday if the deal meant Burger King could eventually sell Tim Hortons coffee, the answer was a quick and definitive "Absolutely not."
"There's no to mix the product or do any co-branding," said Daniel Schwartz, CEO of Burger King.
"The real driver here is the growth, and the ability to take such a strong and beloved brand internationally."
Schwartz will become CEO of the new combined company, with overall day-to-day management and operational accountability.
The new company's board will include the current eight Burger King directors and three directors to be appointed by Tim Hortons, including Caira, who will also be appointed vice-chairman and focus on strategy and global business development.
Private equity firm 3G Capital will own about 51 per cent of the new company, with Behring as executive chairman and director.
The corporate headquarters of the new global company will be based in Canada, but despite much speculation about the possible tax benefits of such a deal, Behring said taxes weren't a motivating force for the move. Burger King says it won't see any meaningful change to its tax rate.
"This is strategic transaction, this is creating a new global leader in the QSR sector, and it's not being driven by tax rates," he said.
"Burger King's effective tax rate is the in mid to high 20s, which is largely consistent with Canadian taxes."
The companies said there won't be any changes to the way the franchises are managed or jobs, saying repeatedly the deal wasn't about synergies but rather growth.
Under the terms of the transaction, Burger King will pay C$65.50 in cash and 0.8025 common shares of the new company for each Tim Hortons' share. This represents total value per Tim Hortons share of C$94.05 Canadian, based on Burger King's closing stock price on Monday. Tim Hortons shareholders can choose either all-cash or all stock in the new company.
Tim Hortons shares were up 8.6 per cent to $89.10 on the Toronto stock market, while Burger King (NYSE:BKW) ticked down 2.6 per cent to US$31.55. Both shares surged almost 20 per cent on Monday when reports of the deal first surfaced.
QuickStats: Facts and figures on the Tim Hortons and Burger King deal
Founded:
Tim Hortons: 1964 in Hamilton, Ont.
Burger King: 1954 in Miami, Fla.
Number of franchises:
Tim Hortons: 4,564 locations worldwide
Burger King: About 14,000 locations
Number of countries:
Tim Hortons: Canada, U.S., and Gulf Co-operation Council.
Burger King: 98 countries and territories
Combined total sales: $23 billion
Number of Tim Hortons coffees served: Approximately two billion cups worldwide in 2013
Number of Whoppers Burger King sells: Approximately 1.7 billion each year in the U.S. alone
Value of deal:
C$12.5 billion
Shareholder options:
Tim Hortons shareholders can receive $65.50 in cash and 0.8025 of a common share of the new company for each one of their shares or an all-cash payment of $88.50 or 3.0879 shares in the new company.
Burger King shareholders will have their shares converted into 0.99 of a share in the new company and 0.01 of a unit of an Ontario limited partnership that will be owned by the parent company.
Brazilian private equity group 3G Capital Inc. will own about 51 per cent of the new company. It currently owns more than 70 per cent of Burger King.
