Let’s call it a Whopper of a deal: the latest corporate buzz surrounds Burger King’s recent $11-billion acquisition of beloved Canadian brand Tim Horton’s. This new merger makes it the third largest fast food chain in the world behind Subway and McDonald’s. The combined company, owned by Brazilian private-equity firm 3G Capital Inc. with a 70 per cent majority, will be headquartered in Oakville, Ontario, a move from Burger King’s current Miami headquarters. Moving the newly merged company to Canada will affect the corporate tax rate paid by BK – and the news has Americans up in arms, so to speak.
What is Tax Inversion?
This is a method used by U.S.-based businesses to lower the corporate tax they’re charged. It involves buying a competitor in a different country, then renouncing U.S. corporate citizenship to take advantage of the more favourable tax rate overseas. Americans are becoming increasingly concerned with businesses’ exodus to greener pastures, though Burger King, an iconic American chain, insists this isn’t the case.
The U.S. Backlash
Since Burger King acquired Tim Horton’s, Many have taken to Twitter to voice their disdain. For example, American columnist Erin Grace tweeted, “Going to McDs over that traitor Burger King. Take that big food industry!”, while Democratic Senator Sherrod Brown called for a Burger King boycott over the merger, saying the fast food chain was “abandoning” America. The irony? Burger King is owned by a Brazilian corporation, and the move, whether it is to save tax dollars or not, is purely business for them. Burger King’s global headquarters will also remain in the U.S.
Burger king has reacted to the criticism, insisting this is not a ploy to avoid paying higher taxes. “We don’t expect there to be meaningful tax savings, nor do we expect there to be meaningful changes to our tax rate,” stated Daniel Schwartz, Burger King’s CEO. But the corporate tax rate in Canada is only 26 per cent compared to the 35 per cent in the U.S.
The Canadian Reaction
In response to the deal, Finance Minister Joe Oliver told reporters, “Canada has moved to a highly competitive tax regime.” Without being specific he added, “We believe this has been a constructive move that is designed to retain capital in this country, which results in more business expansion and more employment.” The deal will mean more tax dollars in Canada and better employment prospects.
The new deal is raising questions – and angst – on both sides of the border. Many people have asked me, so does this mean I can get Tim Horton’s coffee at Burger King? And can I now order a Jr. Whopper with my double double at Tim’s? The answer to all of this is no. In fact customers will probably see little change when they walk in their local Tim Horton’s or Burger King.
The store fronts will remain the same with no crossing over of services or products. But there may be more Tim Horton’s next door to Burger King as we saw when Wendy’s and Tim Horton’s were in business together. Combined, the company has 18,000 restaurants in more than 100 countries, giving Tim’s the opportunity to expand into new markets, especially in the U.S.
It’s Not Tim’s First American Partnership
Many are also wondering what will happen to Wendy’s, the food chain that many thought was still doing business with Tim Horton’s. In 1995, Tim Hortons was purchased by Wendy’s International Inc. That saw the emergence of several Wendy’s and Tim Hortons stores side by side. But in March 2006, Tim Hortons completed an initial public offering and was fully spun off as a separate company. As of September 29, 2006. Tim Hortons trades on the NYSE and TSX under the symbol THI. Because so many Tim Horton’s still exist beside a Wendy’s, the change may not be as apparent to customers. Needless to say this deal has no impact on Wendy’s business, though it will push the restaurant to fourth place among the world’s fast food retailers. For those who remember the Cold Stone Creamery days, those were pulled from Tim Horton’s stores in February 2014. Turns out coffee and ice cream were not the best combination.
Is This Good for Canada?
Patriots may bristle at the “americanization” of such an iconic Canadian brand, but this new development is good for Canada. A company of this sheer size being headquartered in Oakville means jobs and taxes to be paid here. Americans’ “shock” at losing Burger King to Canada will also wear off. After all, Canadians still visit Tim Horton’s more than any other coffee shop in Canada – despite the chain not having Canadian ownership for many decades.