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Originally published Tuesday, August 26, 2014 at 6:52 PM

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Burger King to buy Tim Hortons; headquarters will shift to Canada

Burger King and Canada’s Tim Hortons will be merging, but executives said the two chains will continue to run independently.


The Associated Press

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MIAMI — Burger King struck an $11 billion deal to buy Tim Hortons that would create the world’s third-largest fast-food company and could make the Canadian coffee-and-doughnut chain more of a household name around the world.

Executives said the two chains will continue to be run independently, however, meaning Burger King customers shouldn’t expect to see Tim Hortons coffee or doughnuts popping up on menus.

“There’s no plans to mix the products or do co-branding,” said Daniel Schwartz, CEO of Burger King and a principal of 3G Capital, which owns a majority stake in the hamburger chain.

The corporate headquarters of the new company will be in Canada. Burger King stressed that the deal wasn’t being driven by a desire to take advantage of the country’s lower tax rates, but the international growth possibilities of Tim Hortons.

Since 3G Capital acquired Burger King in 2010, the investment firm has been aggressively expanding the chain’s presence overseas. It has focused on striking deals with local operators in countries including China and Russia to open more Burger King locations while minimizing its own costs and risks.

In the last year, for example, it accelerated expansion and opened more than 700 Burger King locations. Burger King has nearly 14,000 locations globally, but the company has noted that’s still far less than the more than 35,000 McDonald’s restaurants around the world. KFC follows McDonald’s as the world’s No. 2 fast-food company.

3G said it will take its expertise in expanding Burger King and apply it to Tim Hortons.

A U.S.-based company buying Timmy’s, as the company is known colloquially, has drawn mixed reactions from Canadians. The company’s red and gold logo is a ubiquitous sight across the country, the nicknames for its products (“double- double,” “timbits”) part of the national lexicon and its origins are as Canadian as they come.

“I don’t like the idea of an American company buying a Canadian company — it’s our brand,” said Holly Crosgrey, 60, as she sipped a Tim Hortons coffee with three creams at a food court in downtown Toronto. “Timmy’s is always trying new things, adapting, they always have good service, and you always get your coffee fast no matter how long the lineup is. Burger King may screw it up.”

Tim Hortons was co-founded by Canadian hockey player Tim Horton in 1964 in Hamilton, Ontario, then a steel town on the outskirts of Toronto. From offering just coffee and doughnuts in the 1960s at one location, the chain now has more than 3,600 restaurants in Canada and more than 800 in the U.S. Its franchised restaurants employ about 96,000 Canadians.

Tim Hortons has been in American hands before, and was able to keep its Canadian-ness intact. Wendy’s International Inc. bought Tim Hortons in 1995 for $425 million. The coffee chain was spun off in 2006.

Back in the U.S., the deal also gives 3G a stronger foothold in the fast-growing coffee and breakfast market — areas where Burger King has lagged leaders including Starbucks and McDonald’s.

Tim Hortons CEO Marc Caira noted the chain’s recent efforts to become a bigger player in the U.S., including updated store designs that feature couches and fireplaces. Caira said he felt Tim Hortons could “win much quicker” in the U.S. with the help of Burger King.

Breakfast and coffee have been hot growth areas in the U.S. fast-food industry. Between 2007 and 2012, breakfast grew faster than any other segment in the restaurant industry at about 5 percent a year, according to market researcher Technomic. Winning over customers will nevertheless be a challenge for Tim Hortons, given the intensifying competition in recent years.

After the deal, which is expected to close by early next year, the new company would have about $23 billion in sales and more than 18,000 locations.

Berkshire Hathaway is also helping finance the Tim Hortons deal with $3 billion of preferred equity financing, but will not have a role in managing operations.

Some analysts have suggested that Canada’s lower tax rates stand to benefit Burger King over time. But Schwartz said the company doesn’t expect to achieve any “meaningful tax savings” as a result of the deal. He said Burger King’s blended tax rate in the U.S. is in the mid- to high 20s, comparable to the current effective rates in Canada.

Tim Hortons stock rose more than 10 percent in Tuesday premarket trading. Burger King’s shares fell slightly.

Material from Bloomberg News is used in this report.



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