Global Web of Financial Connections in Burger King’s Deal for Tim Hortons

Burger King is an American icon that has served up flame-broiled Whoppers and fries for six decades.

But with a deal to buy the doughnuts-and-coffee chain Tim Hortons on Tuesday, it will soon become a Canadian company majority owned by a Brazilian investment firm — with the assistance of the American billionaire Warren E. Buffett.

In announcing their $11.4 billion merger, Burger King and Tim Hortons declared their intentions to become a truly global fast-food empire whose offerings span from breakfast to dinner.

But executives devoted more time during their tightly planned introduction on Tuesday tamping down outrage over whether Burger King was moving to Canada to lower its tax bill than talking up the merits of the deal.

The acquisition highlights the ever-higher ambitions of Burger King’s majority owner, the relatively low-key 3G Capital. In just six years, the firm, backed by one of Brazil’s wealthiest men, has taken over Burger King and the ketchup colossus H.J. Heinz and helped orchestrate the megamerger of the beer giants InBev and Anheuser-Busch.

The 3G combination of operating prowess and hyperefficient cost-cutting — it has clamped down on expenses as small as color copies at Burger King and mini-fridges at Heinz — has won the investment firm plaudits from the business world. And it has no bigger admirer than Mr. Buffett, who is a longtime friend of the 3G co-founder Jorge Paulo Lemann and was a partner in buying Heinz last year for $23 billion.

“They’re very smart. They’re very focused,” Mr. Buffett said about 3G this year at the annual meeting of his company, Berkshire Hathaway. “When you make a deal with them, you make a deal with them.”

Now 3G and Burger King are looking to bring their expertise to Tim Hortons, which has become a Canadian national symbol that covers three-quarters of its home country. Greeting voters at Tim Hortons’ drive-through windows and being photographed with one of the company’s distinctive brown paper cups is almost obligatory for Canadian politicians.

“This is a phenomenal asset,” Daniel Schwartz, Burger King’s chief executive, said in an interview. “This is a business we can own forever.”

Though 3G had weighed the possibility of a Tim Hortons deal for some time, it and Burger King began formal talks with Tim Hortons earlier this year, according to people briefed on the matter.

For Tim Hortons, led by the chief executive Marc Caira, a merger with a more global counterpart could help fulfill its own international ambitions.

“Tim Hortons should very clearly be a global brand,” Mr. Caira said. “With Burger King and 3G, I can definitely get there faster.”

Executives and bankers from Lazard, the Royal Bank of Canada and Citigroup shuttled between Ontario, New York and other cities over several months to work on the deal, these people said. Advisers quietly worked out the details for a merger of “Red” and “Blue,” the code names for Tim Hortons and Burger King.

One point that became clear was the need to assuage wary Canadian regulators, who have the power to block deals they deem not in the country’s best interests. Though Tim Hortons was already once owned by an American company, Wendy’s, both companies put in provisions aimed at preserving Tim Hortons’ Canadian trappings.

The combined company will be based in Canada, where its biggest market is. And Tim Hortons will still be run out of its home base in Oakville, Ontario. Burger King will be operated from Miami.

While the opposition New Democratic Party, which has ties to organized labor, has called for a strict review, few analysts expect the takeover to be rejected, or the federal Conservative government to demand significant conditions for approval.

Mr. Buffett, eager to again invest with his Brazilian friends, entered the picture early on as well. Berkshire agreed to buy $3 billion worth of preferred stock, which carries an annual dividend of 9 percent, to help finance the deal, on top of $9.5 billion in debt financing arranged by JPMorgan Chase and Wells Fargo.

Once the deal was announced, advisers to both companies treated themselves to Tim Hortons coffee and doughnuts. Mr. Schwartz opted for a “double double,” Canadian for a coffee with two sugars and two helpings of cream.

Under the terms of the deal announced on Tuesday, Burger King will pay 65.50 Canadian dollars in cash and 0.8025 of one of its shares for each Tim Hortons share. That amounts to about 94.05 dollars, or $85.78, a share, based on Burger King’s closing price on Monday.

Shares of Burger King fell 4 percent, to $31, after rising nearly 20 percent on Monday. Shares of Tim Hortons surged 8 percent, to $81.05.

Since news of the talks emerged this week, customers and lawmakers have worried that the deal would be a corporate inversion aimed at trimming Burger King’s tax rate.

Mr. Schwartz argued on Tuesday that his company’s tax rate, now about 27 percent, would remain about the same even after the deal closes. Even before 3G bought Burger King, the company had already taken some moves to reduce its taxes.

Still, customers flooded the company’s Facebook page with angry comments. “If you attempt to buy Tim Hortons for the purposes of evading US Taxes, I will NEVER step foot in another Burger King again,” one user wrote. Some Tim Hortons consumers appeared dismayed about their daily coffee stop losing some of its hometown character.

“In my naïveté, I’m disappointed because I think Tim’s is Canadian and now it’s going to be owned by Americans — well, Brazilians,” said Linda Ladouceur as she made her way into a store in an Ottawa residential neighborhood for a coffee.

Though Ms. Ladouceur acknowledged that she disliked Tim Hortons coffee, preferring McDonald’s, Dominic Franceschina, who accompanied her, said that the chain had something special that its competitors lacked.

“It’s a social thing, more than anything else,” he said. “In Britain, they have the pubs. In Canada, we have Tim Hortons.”

Correction: August 26, 2014
An earlier version of this article misstated the given name of Burger King's chief executive. He is Daniel Schwartz, not David.

 

Source : http://dealbook.nytimes.com/2014/08/26/burger-king-to-buy-tim-hortons-for-11-4-billion/?_php=true&_type=blogs&_r=0