Burger King’s Purchase of Tim Hortons All About Growth Together

Executives state no mixing of products, industry analysts not so sure

TORONTO—The players in Burger King’s deal to buy Tim Hortons are promising there will be no mixing of Whoppers and Timbits, but industry analysts say there’s no guarantee the Canadian doughnut and coffee chain will come out of the multi-billion-dollar merger untouched.

The two companies announced on Tuesday that Miami-based Burger King and private equity firm 3G Capital would buy Tim Hortons in a $12.5 billion deal aimed at increasing the number of fast food companies internationally and in the U.S., a market Tim Hortons describes as a “must-win.”

When asked if the deal meant mingling the brands, such as Burger King selling Tim Hortons coffee, the answer was a quick and definitive “Absolutely not.”

“There’s no plan to mix the product or do any co-branding,” said Daniel Schwartz, CEO of Burger King. “The real driver here is the growth, and the ability to take such a strong and beloved brand internationally.”

The new combined company will be run by Schwartz, who will oversee overall day-to-day management and operational accountability, while Alex Behring, executive chairman of Burger King and managing partner at 3G Capital, will become executive chairman and director. 3G Capital will own about 51 percent of the new company.

Tim Hortons chief executive Marc Caira will take a non-executive role, as he will be appointed vice-chairman and become a director.

“It’s going to be American-run,” summed up Brynn Winegard, a marketing expert at Winegard and Company.

“In the short term, they are going to be very careful about not alienating any of their brand-loyal consumers, but in the longer term, will we start to see some more similarities? I think so.”

Growth Focus

Both companies emphasized Aug. 26 that the focus of the deal was growth, given that it will create the world’s third-largest quick service restaurant company, with about $23 billion in system sales and more than 18,000 restaurants in 100 countries.

“We clearly said that the international markets for us were untapped potential, and certainly this new relationship will allow us to move much quicker as a combined organization than we felt we could move ourselves,” said Caira.

Winegard said customers aren’t likely to notice many of the immediate changes at the stores, since those may involve merging logistics and supply chain infrastructure, or developing joint corporate strategies.

“You can’t take two entities that currently have duplication of efforts and double the amount of supply chain personnel and so on … that they’re not going to somehow try to economize, through economies of scale and by amalgamating and merging some of their current operations,” she said.

The corporate headquarters of the new global company will be in Canada, but despite much speculation about the possible tax benefits of such a deal, Behring said taxes weren’t a motivating force for the move. Burger King says it won’t see any meaningful change to its tax rate by setting up the new company in Canada.

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Tim Hortons and Burger King Facts

Founded:
Tim Hortons: 1964 in Hamilton, Ont.
Burger King: 1954 in Miami, Fla.

Number of franchises:
Tim Hortons: 4,564 locations worldwide
Burger King: About 14,000 locations

Number of countries:
Tim Hortons: Canada, U.S., and Gulf Co-operation Council
Burger King: 98 countries and territories

Value of deal: $12.5 billion

Combined total sales: $23 billion

Number of Tim Hortons coffees served: Approximately two billion cups worldwide in 2013
Number of Whoppers Burger King sells: Approximately 1.7 billion each year in the U.S. alone

Shareholder options:
Tim Hortons shareholders can receive $65.50 in cash and 0.8025 of a common share of the new company for each one of their shares, or an all-cash payment of $88.50 or 3.0879 shares in the new company.

Burger King shareholders will have their shares converted into 0.99 of a share in the new company and 0.01 of a unit of an Ontario limited partnership that will be owned by the parent company.
Brazilian private equity group 3G Capital Inc. will own about 51 percent of the new company. It currently owns more than 70 percent of Burger King.

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