On Tuesday morning, the companies confirmed Warren Buffet’s involvement in financing the transaction, commenting: “Berkshire Hathaway
has committed $3 billion of preferred equity financing. Berkshire is
simply a financing source and will not have any participation in the
management and operation of the business.”
Joined, Burger King and Tim Hortons rake in $23 billion in annual revenues, with over 18,000 restaurant outlets in 100 countries. This merger will see both expand their international footprints under the guidance of Burger King majority owners 3G Capital, the Brazilian private equity firm that acquired the burger giant in 2010.
Speaking to CNBC in May on the subject of tax inversion deals, Warren Buffett said, “It does get a little annoying when we see other people paying far lower tax rates while engaging in the same sorts of businesses that we engage in.”
Now Buffett appears to have decided to get in on the game: The Oracle of Omaha is extending financing to Burger King for its planned takeover of Canadian coffee-and-donuts chain Tim Hortons , the Wall Street Journal reported Monday evening, citing sources familiar with the deal.
After the the deal is completed, Burger King plans to move its
headquarters from Miami to Oakville, Ontario, where it would be subject
to Canada’s federal corporate tax rate of 15%, far below the top U.S.
marginal rate of 35%. It would be the latest in a series of foreign
acquisitions by U.S. companies designed to lower their tax bills. In a
so-called tax inversion deal, a U.S. company reincorporates in the
country of a business it buys — Ireland, with its 12.5% corporate tax
rate, is a favored destination — or in another country altogether.
To get around previous restrictions passed by Congress to discourage corporate tax flight, a U.S. company must do a deal that raises the foreign share of ownership in its stock above 20%. A spate of tax inversions this year, mostly involving health care companies, has raised the ire of President Obama and Congress, and the Treasury Department is preparing tax rule changes to tame the practice.
However, there are other rationales for Burger King to do the deal, besides lower taxes, as Forbes’ Clare O’Connor points out: Management is likely to take Tim Hortons international, copying from the same overseas expansion playbook that Burger King has used to good effect since 2010, and there could be synergies to offering overseas diners two vastly different takes on Western fast food.
Investors gave an enthusiastic reception to the news of the talks between the companies, which broke Sunday night;
Tim Hortons shares rose 18.9% on the New York Stock Exchange on Monday, while Burger King shot up 19.5%.
The combined company would be controlled by Burger King’s biggest shareholder, Brazilian private-equity firm 3G Capital. Buffett partnered with 3G last year to buy Heinz, and he has said that he would be happy to work with them again.
Buffett told CNBC in May that he doesn’t think U.S. companies are
overtaxed compared to their competitors overseas.
”If you look at corporate taxes as a percentage of GDP since World War II, they’ve come down from 4% to about 2% — in fact under 2%. That’s while corporate profits have been hitting record levels. … Corporations are doing fine in the United States.”
He said, however, that he expected the surge in companies looking to move their tax domiciles overseas would force Congress to address the issue, and perhaps even rethink the corporate tax code completely. “This whole thing … will cause one hell of a fight in corporate America.”
The participation of America’s most famous investor in the flight of one our country’s most well-known fast-food brands only seems likely to make that fight more intense.
