Burger King wants to buy Tim Hortons, save on taxes (+video)
Burger King is in talks to buy Canadian coffee and doughnut chain Tim Hortons. If completed, the deal between Tim Hortons and Burger King would create a publicly traded company based in Canada and a way for the burger chain to shave its US tax bill.
With a new base in Canada,Â BurgerÂ King, now based in Miami, could shave its U.S. tax bill. Tax inversions have become increasingly popular among U.S. companies trying to cut costs.
The majority owner ofÂ BurgerÂ King, 3G Capital, would own the majority of shares of the new company.
In an inversion, a U.S. company reorganizes in a country with a lower tax rate by acquiring or merging with a company there. Inversions allow companies to transfer money earned overseas to the parent company without paying additional U.S. taxes. That money can be used to reinvest in the business or to fund dividends and buybacks, among other things.
Companies like AbbVie, a pharmaceutical with its headquarters just outside Chicago, have tied up with companies overseas to achieve that type of tax cut.
More recently, Walgreen, the huge retail chain, backed away from such a plan under intense pressure in what is becoming an increasingly hot political issue.
3G Capital tookÂ BurgerÂ KingÂ public again in 2012. The investment firm teamed with Berkshire Hathaway Inc. last year to take H.J. Heinz Co. private in a $23 billion deal. 3G Capital is known for aggressive cost-cutting at the companies it acquires.
Tim Hortons, known for its doughnuts and coffee, was purchased by Wendy's International Inc. in 1995. In 2006 it completed an initial public offering and was spun off as a separate company.
The deal would also allow Tim Hortons to accelerate its growth in international markets. The company had 4,546 restaurants as of June 29, with 3,630 in Canada, 866 in the U.S. and 50 in the Persian Gulf area.
The companies sayÂ BurgerÂ KingÂ Worldwide Inc. and Tim Hortons Inc., based in Ontario, would continue to operate as separate brands but would share corporate services.
The Wall Street Journal first reported the talks and that the companies say there's no assurance a deal will happen.
The new company would have 18,000 restaurants in 100 countries with about $22 billion in sales. The companies say that would make it the world's third-largest fast-food restaurant company.
BurgerÂ King'sÂ stock surged $1.89, or 7 percent, to $29 before the market open on Monday.
If completed, the deal would cap off a summer of mixed results for Burger King. Last week, the chain began taking steps to ax its low-calorie french fry offering, "Satisfries" after less than a year of production and mostly dubious reviews. On the other hand, it scored a social media victory with Chicken Fries, which were brought back after a two-year absence thanks to the demands of fans on Facebook and Twitter. Social media is playing a bigger and bigger role in influencing fast food menu development in the US, as BurgerBusiness blogger Scott Hume wrote earlier this month:Â
Any lingering doubts about social mediaâ€™s influence on QSR menu development are dispelled byÂ Burger Kingâ€™s revival ofÂ Chicken Fries.
Introduced in 2005 and dropped from the menu in 2012, Chicken Fries have been a social-media topic ever since, according to Burger King CMO-North America Eric Hirschhorn. â€śLiterally from the day Chicken Fries left the menu there has been an incredible outcry on social media to bring them back,â€ť he said.
But a post in January 2014 on Buzzfeed,Â â€ś35 Things From Your Childhood That Are Extinct Now,â€ťÂ that included Chicken Fries â€śreally lit the fireâ€ť under the chainâ€™s determination to bring the item back. Hirschhorn called it an example of how it has â€śleveraged social-media listening.â€ť
Chicken Fries return as the same productâ€”â€śwhite meat chicken coated in a light crispy breading seasoned with savory spices and herbsâ€ť and shaped like friesâ€”but the packaging is different although still sized to fit car cupholders.
In line with Burger Kingâ€™s determination to keep operations and menu as simple as possible, Chicken Fries return only as a 9-piece pack for $2.89. The 6- and 12-piece options have been dropped because most consumers bought the 9-piece size, Hirschhorn said.
Marketing for the product will be almost entirely via social-media channels. The exception is that Burger King will air original TV spots from the 2005 launch only on Thursdays in a nod to the popular â€śThrowback Thursdayâ€ť fad on, yes, social media. Additionally, Burger King has teamed withÂ eBayÂ for a fan page through which Chicken Fries fanatics can buy a variety of apparel and accessories. TheÂ eBay pageÂ will go live on August 12. Profits from the merchandise go to the chainâ€™s McLamore Foundation.
Chicken Fries are scheduled to be on the menu for three months, â€śbut thereâ€™s so much demand, they may not last that long,â€ť said Hirschhorn.Â