Burger King Worldwide Inc announced plans to buy Canadian coffee and doughnut chain Tim Hortons Inc for $12.64 billion in a cash-and-stock deal that would create the world’s third-largest fast-food restaurant group.
With roughly US$23 billion in combined annual sales, more than 18,000 restaurants in 100 countries and two strong, independent brands, the new entity would have an extensive global footprint and significant growth potential, the companies said in a joint statement on Tuesday.
The companies had said on Sunday that they were in merger talks, and shares of both soared on Monday.
Tim Hortons shareholders will receive $65.50 in cash and 0.8025 shares of the new company for each of their shares. Based on Monday’s close, the deal values Tim Hortons at $94.05 a share, a 37 percent premium to Friday’s close of $68.78 on the Toronto Stock Exchange.
Tim Hortons’ New York-listed shares rose 12 percent to US$83.50 in premarket trading. Burger King was up 5 percent at US$33.96.
Billionaire investor Warren Buffett‘s Berkshire Hathaway has committed US$3 billion of preferred equity to finance the deal but will have no role in managing the business, the companies said.
3G Capital, a New York-based private equity firm with Brazilian roots, owns roughly 70 percent of Burger King and is set to hold about 51 percent of the new combined company.
3G Capital bought Burger King in 2010 for approximately US$3.3 billion. At the time, it was one of the largest restaurant acquisitions in many years. Burger King was also owned by U.S. private equity firms Bain Capital, Goldman Sachs and TPG Capital between 2002 and 2006.
Burger King Executive Chairman Alex Behring and Chief Executive Officer Daniel Schwartz will hold the same positions at the combined company. Tim Hortons CEO Marc Caira will be vice chairman.
The company is to be based in Canada, its largest market.
Investors and tax experts say the main reason for Burger King to move its domicile to Canada is to avoid having to pay double taxation on profits earned abroad, as the company would likely be subject to do if it remained in the United States.
Burger King, however, stressed Miami would remain its global home, while Oakville, Ontario, would will continue to be the worldwide headquarters of Tim Hortons.
The companies outlined a “commitment to Canada,” vowing that Tim Hortons would continue its community programs. It sponsors kids’ hockey teams across the country, among other projects.
Burger King also vowed to maintain “a meaningful number of Canadian-based executives” and that the deal would not change Tim Hortons’ business model or relationships with franchises.
Shares in the new combined entity will be listed on the New York Stock Exchange and the Toronto Stock Exchange.
Burger King has secured commitments for US$12.5 billion of funding for the cash portion of the transaction, including commitments for a US$9.5 billion debt financing package led by JPMorgan and Wells Fargo.
(Reporting by Euan Rocha and Allison Martell in Toronto and Ashutosh Pandey in Bangalore; Editing by Savio D’Souza and Lisa Von Ahn)
(This story has been edited by Kirk Falconer, editor of PE Hub Canada)