TORONTO (Reuters) - Burger King Worldwide Inc plans to buy Canadian coffee and doughnut chain Tim Hortons Inc in a C$12.64 billion (S$14.4 billion) cash-and-stock deal that would create the world's third-largest fast-food restaurant group.
With roughly US$23 billion (S$28.7 billion) in combined annual sales and more than 18,000 restaurants in 100 countries, the new entity would have a vast global footprint and huge growth potential, the companies said in a joint statement on Tuesday.
The deal is not expected to run into any antitrust hurdles, given the different fast-food segments the two companies serve, but it is expected to generate some anger in the United States because of Burger King's plan to move the combined entity to Canada.
The companies had confirmed on Sunday that they were in merger talks, and shares of both soared on Monday. The deal values Tim Hortons at C$94.05 a share, a 37 per cent premium to Friday's close of C$68.78 in Toronto.
Tim Hortons' Toronto-listed shares were up 8.8 percent at C$89.29 in morning trading, while Burger King fell 2.5 percent to $31.58 in New York.
"I think C$94 is pretty rich," said David Baskin, president of Baskin Financial Services, which controls about 180,000 shares in Tim Hortons. "We were hoping for C$90, but at C$94, I can't imagine anybody not tendering."
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 investment firm with Brazilian roots, owns some 70 percent of Burger King, making a shareholder vote on the deal unnecessary. 3G is set to hold about 51 per cent of the combined company.
Last year, Berkshire provided US$12 billion toward a US$23 billion deal that gave 3G day-to-day control of Heinz, the world's top ketchup maker. Buffett said earlier this year he would probably partner with 3G again, lauding it for doing a"magnificent job" of running businesses.
Investors and tax experts say the main reason for Burger King to move its domicile to Canada, its largest market, is to avoid having to pay double taxation on profits earned abroad, which the company would probably be subject to if it remains in the United States. The transaction is subject to customary closing conditions, including approval by Tim Hortons shareholders and certain regulators in Canada and the United States.
U.S. politicians have slammed Burger King for the so-called tax inversion deal, while some fear the deal may generate some blowback north of the border with the ownership of the iconic Canadian coffee chain once again falling into foreign hands.
Burger King, however, stressed that Miami would remain its global home, while Oakville, Ontario, would continue to be the worldwide headquarters of Tim Hortons.
Burger King Executive Chair Alex Behring and Chief Executive Officer Daniel Schwartz would hold the same positions at the combined company. Tim Hortons CEO Marc Caira would be vice chair.
Burger King vowed to maintain "a meaningful number of Canadian-based executives" and said the deal would not change Tim Hortons' business model or relationships with franchises. Shares of the combined entity would trade in both New York and Toronto.