Editor's note: To no one's surprise, Burger King has purchased Tim Hortons for about $11 billion. That is a lot of dough(nuts).
Having a Canadian donut icon owned by a U.S. fast food burger franchise wouldn't be new for Tim Hortons. After all, the company dealt well enough being owned by Wendy's from 1995-2006. The new potential company would be the world's third-largest quick service restaurant.
The new takeover threat from Burger King has financial and political overtones between the two countries, as the Miami-based company wants to reduce its tax load by headquartering in Canada. The U.S. corporate tax rate is 35% with considerable deductions and loopholes. Canada's corporate federal tax rate is 15%. (The new company would have to pay Ontario corporate taxes so the combined rate would be 25% or higher. Florida has no state income tax for individuals.)
Burger King, which would be acquiring Tim Hortons, is actually majority-owned (70%) by 3G Capital, a New York-based investment firm with Brazilian roots. The company acquired the burger company in 2010.
The idea of Burger King being based in Oakville, Ontario is a bit hard to swallow. In this growing desire for U.S. companies to dodge U.S. taxes, they usually have very little to do with the destination country. Compared to McDonald's in Canada, at least anecdotally, I hardly see any Burger King locations north of the border. So Canada might not even get too many more Burger King locations, sad if you're Canadian and like Burger King.
Burger King gets a tax dodge and to be called "Canadian." But what does Tim Hortons get from the potential deal?
Reportedly, the two companies will be run separately (whew). Tim Hortons is interested in U.S. expansion and Burger King could help with that.
Burger King's recent philosophy has been to come up with lots of bad ideas (Satisfries), so Tim Hortons could teach Burger King about successful innovations.
Burger King may be counting on one other advantage in this tax shelter deal: Canada would be seen as a friendlier destination for a U.S. deserter corporation than Europe. Being next door looks better than having an ocean in between.
If the deal goes through, Burger King won't be anymore Canadian than Wendy's was during its ownership of Tim Hortons. And the Canadian icon can survive being owned by a U.S. burger company. The fear is that Burger King will benefit much better from the deal to the detriment of Tim Hortons. Nothing personal to 3G Capital, but being owned by an investment firm doesn't lend to long-term growth but cutting expenses.
Canada offers cheaper health care and stronger overall primary education as incentives to get companies to come to Canada. Those amenities won't help the company unless Burger King executives live in Canada or Burger King expands to more locations north of the 49th parallel. Seeing Canada as a business destination is a little cool, even if it is little more than paper.