Burger King Tim Hortons

Merger

Group 11 Section B
Mayank Rathore, 13P148

Nikhil Jain, 13P152

Shashank Shukla, 13P166

Shivam Atri, 13P167

Burger King
Global chain of hamburger
Headquartered in Miami, USA
Brazilian private-equity firm 3G Capital Inc., currently owns about 70% of Burger
King.
Has been reporting unimpressive results in the past few quarters
Reported 6% revenue decline due to slump in company-operated store revenues

Tim Horton
Canadas largest fast food service
Has 4546 system-wide restaurants
Stores spread mainly across US and Canada
Reported a 9% increase in revenue y-o-y in Q2, 2014
Same store sales growth at 2.6% in Canada and 5.9% in the USA
Wendy's International Inc. bought the chain in 1995 and held onto it until 2006, when it was
spun off as a separate publicly traded company

The Merger
Joined hands to create worlds 3rd largest quick service restaurant company
Combined sales of $23 billion
New company has over 18,000 restaurants in 100 countries
Headquartered in Oakville, Ontario, Canada

3G capital will own 51% in the new merged entity

Will be listed on both Toronto and New York Stock Exchange

Tax Inversion Concerns

Re-incorporating a company overseas in order to reduce the tax
burden on income earned abroad
The Canadian corporate tax rate is typically 26.5%
USA has a corporate tax rate of 40%
Burger King already pays a lower rate because it operates in a mix
of tax jurisdictions.
Its effective tax rate in 2013 was 27.5 percent
Structured to shield Burger King holders from capitalgains taxes.

Burger King maintains that the deal is more about growth and
not really about taxes

3G Capital and Mr. Buffett

Joined hands last year in takeover of HJ Heinz Co.

Deal worth $23.3 billion

Similar structure of the deal wherein Buffett invested $8 billion
for preferred shares with a return of 9% annually

Berkshire to be compensated for more than $50 million in

additional taxes
3G does a magnificent job of running businesses Mr. Buffett

Mr. Buffett assumed the new company resulting from it would be

based in the U.S

Revenue Figures

Burger King Share price movement

Tim Hortons share price movement

Stock Gains
Burger king shares jumped 20% the next day, the biggest
rise since its debut on NYSE
Retreated 4.3% to $31 the following day
Tim Horton climbed 19% followed by 8.1% the following day
Transaction offers a 30% premium to Tim Horton's shares
Tim Horton's shares traded below the deal price
Deal could be halted by Canadian government due to tax inversion
concerns

Deal Financing
Burger King to pay $11 billion to Tim Hortons

30% premium to Tim Hortons at the time of offer

Berkshire Hathaway to pay $3 billion of it through preferred
equity financing
To receive an interest payment of 9 percent annually on the
investment

Burger King to fund the cash portion from the debt package
received from JPMC and Wells Fargo & Co. worth $9.5
billion

Advantages to Burger King

International expansion fits
perfectly with its new
business model
Better menu resources
could use Tim Hortons
innovative menu
Incremental revenues
Expansion scope entry to
retail stores

Tax Savings shifting head

office to Canada

Synergies Involved
Tim Horton

Burger King

Struggled to gain foothold in the US Facing increased competition in the US

Has versatile offerings for the
breakfast segment
Has double the number of
restaurants as compared to
McDonalds in Canada with better
system wide sales
Has over 70% share of baked goods
market in Canada and more than
75% of Canadian coffee market

from emerging fast-casual and

breakfast segment

Witnessing sluggish growth in the

domestic market
Company plans to use Tim Hortons
offerings to compete with Starbucks
and McDonalds McCafe and Dunkin
Donuts in USA
Has around 280 restaurants in Canada
and has limited growth potential in
USA with 7000 restaurants

THANK YOU