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Burger King-Tim Hortons Merger: Another Corporate Desertion or Good Business Strategy?

In late August, Burger King announced that it intended to acquire the Canadian coffee and donut chain Tim Hortons for $11 billion.1 The combined company will be headquartered in Canada.2 By purchasing Tim Hortons, Burger King has faced criticism that it is yet another U.S. corporation deserting its country for tax advantages.3 In the last 10 years, nearly 50 companies have inverted, and inversions have recently become popular among health care companies.4 However, Burger King’s merger with Tim Hortons and incorporation in Canada makes sense for reasons aside from a lower U.S. tax bill. This post will address the potential benefits of a merger.

The merger will possibly provide strategic advantages for both companies. For example, Forbes explains that Tim Hortons is dominant in the Canadian market, which can help Burger King strengthen its presence there.5 Also, Burger King can help Tim Hortons expand to other locations. For example, Tim Hortons has had difficulty expanding in the United States, where chains such as McDonalds, Starbucks, and Dunkin’ Donuts are dominant.6 Burger King can help it strengthen its reach in the United States as well as its international presence, as Burger King has over 6,000 stores internationally.7, providing more resources with which to invest in growth.

Merging with Tim Hortons might also help Burger King diversify its menus. Burger King has strong competition for breakfast foods, specifically coffee, from for instance McDonald’s McCafe and Starbucks.8 In Canada, Tim Hortons has a 70% share of the baked goods market and more than 75% of the coffee market.9 Burger King can benefit from Tim Hortons’ expertise in breakfast foods and more effectively compete with other chains.10 Moreover, Tim Hortons can help Burger King compete with the growing fast-casual restaurant segment (e.g., Panera Bread)11 with items such as the sandwiches and wraps on its menu.12

Burger King and Tim Hortons have several reasons for locating the combined company in Canada. First, as Matt Levine argues, the inversion is “not all that inverted.”13 Inversions generally involve a U.S. company purchasing a much smaller foreign entity to reincorporate abroad. However in this case, in terms of revenue, Tim Hortons is the larger company. It had $3 billion in revenues last year compared to $1.1 billion for Burger King.14 After the merger, two-thirds of the combined company’s revenue will come from Canada.15 Most of the proposed legislation to curb tax inversion allows for exceptions when there are “substantial business activities” in the country of incorporation.16 Tim Hortons and Burger King will most likely meet the thresholds set out by the legislation.17 Also, if the combined company was incorporated in the United States, it would have to pay the 35% U.S. corporate tax rate on revenue earned from Tim Hortons’ Canadian stores, tax that Tim Hortons does not currently pay.18

This is not to say that Burger King will not gain significant tax advantages by incorporating in Canada; there are several advantages. For example, Burger King will no longer have to pay the 35% corporate tax rate on its international locations if it decides to repatriate the income.19 Even though Burger King will still have to pay tax on its U.S. locations, it can use techniques such as stripping earnings and reassigning franchise fees from its U.S. operations to Canada and thus reduce its U.S. tax liability.20

There is also a risk that the possible strategic benefits will not materialize. At one time, Tim Hortons was owned by another U.S. fast food chain, Wendy’s.21 However, Wendy’s eventually spun off Tim Hortons, citing among their reasons “minimal” synergies between the two companies.22

Having said that, as explained above, there are strategic possibilities to merging the two companies. And if the merger does not work out, Burger King can potentially do exactly what Tim Hortons did after it was spun-off from Wendy’s—incorporate in the country from which it came.23


  1. 1. Leslie Patton and Craig Giammona, Burger King to Buy Tim Hortons for About $11 Billion, Bloomberg (Aug 26, 2014 4:38 PM), http://www.bloomberg.com/news/2014-08-26/burger-king-agrees-to-buy-tim-hortons-in-move-to-lower-taxes.html. 

  2. 2. Id. 

  3. 3. Scott Hume, Tim Hortons Deal Is Hurting Burger King’s Image, Christian Sci. Monitor (Sept. 10, 2014), http://www.csmonitor.com/Business/The-Bite/2014/0910/Tim-Hortons-deal-is-hurting-Burger-King-s-image. 

  4. 4. Stephen Ohlemacher, Avoid taxes? 10 Things to Know About Inversions, USA Today (Aug. 31, 2014 6:30 AM), http://www.usatoday.com/story/money/business/2014/08/31/corporate-tax-inversions/14686959/. 

  5. 5. Burger King-Tim Hortons Cross-Border Merger Much More Than Tax Inversion, Forbes (Aug. 29, 2014 1:42 PM), http://www.forbes.com/sites/greatspeculations/2014/08/29/burger-king-tim-hortons-cross-border-merger-much-more-than-tax-inversion/ [hereinafter Forbes]. 

  6. 6. Id. 

  7. 7. See id.) The combined company will be the world’s third-largest fast food company ((8. Venessa Wong, Burger King Looks to Ride Coffee Boom, Save on Taxes by Acquiring Tim Hortons, Bus. Wk. (Aug. 25, 2014), http://www.businessweek.com/articles/2014-08-25/burger-king-looks-to-ride-coffee-boom-save-on-taxes-by-acquiring-tim-hortons. 

  8. 9. Forbes, supra note 5. 

  9. 10. Id. 

  10. 11. Hayley Peterson, Here’s What You Need To Know About Tim Hortons, the Canadian Coffee Chain Burger King Wants to Buy, Bus. Insider (Aug. 25, 2014, 12:43 PM), http://www.businessinsider.com/tim-hortons-coffee-chain-burger-king-2014-8 (listing breakfast items made by Tim Hortons such as “eggs,” “bacon,” and “turkey-sausage”). 

  11. 12. Forbes, supra note 5. 

  12. 13. Peterson, supra note 11. 

  13. 14. Matt Levine, Burger King May Move to Canada for the Donuts, BloombergView (Aug. 25, 2014, 5:05 PM), http://www.bloombergview.com/articles/2014-08-25/burger-king-may-move-to-canada-for-the-donuts. 

  14. 15. Steven Davidoff Solomon, Inversion Critics and Investors May be Misjudging Burger King Deal, N.Y. Times (Aug, 26, 2014 2:44 PM), http://dealbook.nytimes.com/2014/08/26/inversion-critics-and-investors-may-be-misjudging-burger-king-deal/. 

  15. 16. Jim Puzzanghera & Shan Li, Burger King and Warren Buffet under fire for Tim Hortons deal, L.A. Times (Aug. 26, 2014, 7:35 PM), http://www.latimes.com/business/la-fi-burger-king-buffett-hortons-20140827-story.html#page=1. 

  16. 17. Levine, supra note 14. 

  17. 18. See id. 

  18. 19. See id. 

  19. 20. See id. 

  20. 21. Eileen Appelbaum, Is Burger King Move to Canada a Raw Deal for U.S. Taxpayers, Fortune (Aug. 28, 2014, 12:24 PM), http://fortune.com/2014/08/28/is-burger-kings-move-to-canada-a-raw-deal-for-u-s-taxpayers/. 

  21. 22. Rob Cox, Burger King Wins Support Where Wendy’s Didn’t in Tim Hortons Deal, N.Y. Times (Aug. 26, 2014, 2:20 PM), http://dealbook.nytimes.com/2014/08/26/burger-king-wins-support-where-wendys-didnt-in-tim-hortons-deal/. 

  22. 23. Id. 

  23. 24. See David Friend, Tim Hortons Returns Officially to Canada, Star (June 30, 2009), http://www.thestar.com/business/2009/06/30/tim_hortons_returns_officially_to_canada.html. 

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Gita Subramaniam

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