Burger King to Acquire Tim Hortons and Create $18B Fast Food Powerhouse

Burger King is in talks to acquire Canadian coffee chain Tim Hortons in a collaboration that would create a market capitalization of roughly $18 billion.

The two companies, comparable in size by market value, confirmed their merger discussions yesterday, saying that the new company would be the world’s third-largest quick service restaurant.  The company would be based in Canada, which has lower overall corporate taxes than the U.S., especially for entities that have large amounts of overseas earnings.

The deal would be structured as a “tax inversion transaction” to move Burger King’s residency out of the U.S., and it could come as soon as this week, according to sources familiar with the discussions.

Recent attempts by companies for tax inversion deals, created to avoid higher U.S. taxes and save money on foreign earnings, have drawn the attention of President Obama, who criticized a “herd mentality” of companies seeking the deals.

Tax inversions have increased in recent months as low interest rates are making it easier for companies to make acquisitions, Keybanc analyst Christopher O’Cull wrote in a note to clients regarding the deal.

The companies said that 3G Capital, Burger King’s majority owner, would continue to own the majority of the shares in the new combined entity on a pro forma basis.  Existing Tim Hortons and Burger King shareholders will hold the remainder.

Tim Hortons and Burger King are set to operate as standalone brands within this new entity while benefiting from shared corporate services, the companies said in a statement.  Burger King said its experience in building a large global footprint would allow it to help accelerate Tim Hortons' growth in international markets.

The companies said that they do not plan to comment on the potential deal any further unless and until a transaction is agreed or discussions are discontinued.