NEW YORK: Burger King is buying Canada's Tim Hortons coffee-and-donuts chain in an $11.4 billion deal that has raised concerns of another US corporate icon moving abroad for tax reasons.
Burger King Worldwide denied that the deal announced Tuesday, which would create the world's third-largest fast-food company, was being undertaken for tax reasons.
But the planned move of the headquarters of the "Home of the Whopper" from Miami to Canada, which could cut its corporate tax bill, sparked calls for boycotts from consumers and objections on Capitol Hill.
Burger King agreed to pay $11.4 billion (CAN$12.5 billion) in cash and stock for Tim Hortons, based on the closing share price Monday.
The deal, backed by legendary investor Warren Buffett, would create a "quick-service restaurant" giant with $23 billion in sales and more than 18,000 restaurants in 100 countries.
"By bringing together our two iconic companies under common ownership, we are creating a global QSR powerhouse," said Alex Behring, executive chairman of Burger King and managing partner of 3G Capital, Burger King's majority owner.
"This is not a tax-driven deal, this transaction is fundamentally about growth and the focus is on creating value through accelerating international expansion for both brands," Behring said in a conference call.
Burger King's effective tax rate "is currently in the mid- to high twenties, which is pretty much in line with the current effective rate in Canada," he added.
The two brands would continue to operate independently, Burger King overseen from in Miami and Tim Hortons in Oakville, Ontario.
Tim Hortons is Canada's dominant fast-food chain, operating restaurants across Canada, the US midwest and northeast, and some international locations. The tie-up would give it access to Burger King's larger footprint in 98 countries and territories worldwide.
According to the latest rankings of QSR, an industry magazine, Burger King currently ranks fifth among fast food and drink chains, behind rival McDonald's, sandwich chain Subway, coffee titan Starbucks and the Wendy's chain.
In the deal, Brazilian-controlled 3G Capital will convert its roughly 70 percent equity stake in Burger King to a 51 percent shareholding in the new company.
Burger King said it had lined up $12.5 billion in financing for the cash portion of the deal. That includes $3 billion from Buffett's Berkshire Hathaway for preferred shares.
Berkshire and 3G Capital partnered in the takeover of ketchup maker HJ Heinz last year.
Daniel Schwartz, Burger King's chief executive, would be the CEO of the new company, but Berkshire will not take part in the management. Shares would be traded in New York and Toronto.
Burger King shares were down 3.5 percent at $31.27 and US-traded shares of Tim Hortons surged 8.7 percent to $81.04 in early-afternoon trade.
Tax inversion flashpoint:
The two companies explained that their corporate headquarters will be in Canada because the country is "the largest market of the combined company."
But critics say the company will accrue significant tax savings due to Canada's lower corporate tax rate.
If true, it would be the latest in a wave of tax inversion deals in which a US company relocates its statutory headquarters outside the country to take advantage of lower tax rates.
US President Barack Obama and other top officials have strongly criticized tax inversions for weakening the country's finances. The administration is pushing Congress to amend tax laws to close the tax loophole. Response to the merger announcement on Capitol Hill was swift.
"@BurgerKing wants your money. Now they want you to pay their taxes too. Time to ditch the Whopper?" tweeted Chris Van Hollen, the top Democrat on the House of Representatives Budget Committee.
Conservative House Republican Matt Salmon tweeted: "The news of Burger King's move to Canada ought to motivate us to take a serious look at how we do business." Angry comments peppered Burger King's Facebook page.
"That's it burger king, never EVER will I buy from you. If you can't be an AMERICAN and pay taxes like the rest of us working stiffs who buy your burgers, then you're a fake and unpatriotic," wrote one commenter.
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