With a new base in Canada, Burger King, now based in Miami, could shave its U.S. tax bill. Tax inversions have become increasingly popular among U.S. companies trying to cut costs.
The majority owner of Burger King, 3G Capital, would own the majority of shares of the new company.
In an inversion, a U.S. company reorganizes in a country with a lower tax rate by acquiring or merging with a company there. Inversions allow companies to transfer money earned overseas to the parent company without paying additional U.S. taxes. That money can be used to reinvest in the business or to fund dividends and buybacks, among other things.
Companies like AbbVie, a pharmaceutical with its headquarters just outside Chicago, have tied up with companies overseas to achieve that type of tax cut.
More recently, Walgreen, the huge retail chain, backed away from such a plan under intense pressure in what is becoming an increasingly hot political issue.
3G Capital took Burger King public again in 2012. The investment firm teamed with Berkshire Hathaway Inc. last year to take H.J. Heinz Co. private in a $23 billion deal. 3G Capital is known for aggressive cost-cutting at the companies it acquires.
Tim Hortons, known for its doughnuts and coffee, was purchased by Wendy's International Inc. in 1995. In 2006 it completed an initial public offering and was spun off as a separate company.
The deal would also allow Tim Hortons to accelerate its growth in international markets. The company had 4,546 restaurants as of June 29, with 3,630 in Canada, 866 in the U.S. and 50 in the Persian Gulf area.
The companies say Burger King Worldwide Inc. and Tim Hortons Inc., based in Ontario, would continue to operate as separate brands but would share corporate services.
The Wall Street Journal first reported the talks and that the companies say there's no assurance a deal will happen.
The new company would have 18,000 restaurants in 100 countries with about $22 billion in sales. The companies say that would make it the world's third-largest fast-food restaurant company.
Burger King's stock surged $1.89, or 7 percent, to $29 before the market open on Monday.
If completed, the deal would cap off a summer of mixed results for Burger King. Last week, the chain began taking steps to ax its low-calorie french fry offering, "Satisfries" after less than a year of production and mostly dubious reviews. On the other hand, it scored a social media victory with Chicken Fries, which were brought back after a two-year absence thanks to the demands of fans on Facebook and Twitter. Social media is playing a bigger and bigger role in influencing fast food menu development in the US, as BurgerBusiness blogger Scott Hume wrote earlier this month:
Any lingering doubts about social media’s influence on QSR menu development are dispelled by Burger King’s revival of Chicken Fries.
Introduced in 2005 and dropped from the menu in 2012, Chicken Fries have been a social-media topic ever since, according to Burger King CMO-North America Eric Hirschhorn. “Literally from the day Chicken Fries left the menu there has been an incredible outcry on social media to bring them back,” he said.
But a post in January 2014 on Buzzfeed, “35 Things From Your Childhood That Are Extinct Now,” that included Chicken Fries “really lit the fire” under the chain’s determination to bring the item back. Hirschhorn called it an example of how it has “leveraged social-media listening.”
Chicken Fries return as the same product—“white meat chicken coated in a light crispy breading seasoned with savory spices and herbs” and shaped like fries—but the packaging is different although still sized to fit car cupholders.
In line with Burger King’s determination to keep operations and menu as simple as possible, Chicken Fries return only as a 9-piece pack for $2.89. The 6- and 12-piece options have been dropped because most consumers bought the 9-piece size, Hirschhorn said.
Marketing for the product will be almost entirely via social-media channels. The exception is that Burger King will air original TV spots from the 2005 launch only on Thursdays in a nod to the popular “Throwback Thursday” fad on, yes, social media. Additionally, Burger King has teamed with eBay for a fan page through which Chicken Fries fanatics can buy a variety of apparel and accessories. The eBay page will go live on August 12. Profits from the merchandise go to the chain’s McLamore Foundation.
Chicken Fries are scheduled to be on the menu for three months, “but there’s so much demand, they may not last that long,” said Hirschhorn.