Burger King and Tim Hortons Make it Official

A deal has been made, and Burger King Worldwide has agreed to acquire Tim Hortons Inc. for $12.5 billion.

According to a statement released today, Tim Hortons investors will receive $65.50 in cash and 0.8025 a share of the combined entity for each share they own.  The price deal values each Tim Horton share at $94.05 based on Burger King’s closing price yesterday.

The acquisition gives Burger King access to a beloved coffee brand, which could potentially boost breakfast sales.  The deal also marks Burger King’s foray into the grocery business through sales of packaged coffee at supermarkets in North America.

3G Capital, the investment firm that owns Burger King, will own 51 percent of the new company.  Warren Buffett’s Berkshire Hathaway Inc. also has committed $3 billion of preferred equity financing.  Berkshire Hathaway will not be participating in managing the restaurant business.

3G joined Buffett last year in a $23.3 billion takeover of HJ Heinz Co.  Buffett reportedly bought half of Heinz’s common stock for $4.25 billion and invested $8 billion for  preferred shares that pay a nine percent annual dividend and gave Berkshire options to buy an additional five percent stake.

“3G does a magnificent job of running businesses,” Buffett said in May at his company’s annual meeting. “We’re very likely to partner with them, perhaps on some things that are very large.”

Burger King is the second-largest burger chain in the United States.  The company has long struggled to boost its sales and compete with McDonald’s Corp.’s breakfast fare.

Burger King could also potentially expand Tim Hortons restaurants in the 98 countries where it operates, leading to supply-chain, marketing and administrative cost savings.