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Burger King's Conference Says Its Merger With Tim Hortons Isn't For Taxes

|Includes: QSR, Restaurant Brands International Inc. (QSR)


Burger King and Tim Hortons clarified the deal isn’t tax motivated but is for more other reasons.

The conference confirmed my confidence that the combined entity will be a stronger player than the sum of the two parts.

I have to admit, I originally thought taxes was part of the motivation and didn’t think what we now knows as a myth would be shot down so quickly.

Burger King (BKW) and Tim Hortons (THI) hosted on a media conference call on August 26. The call was full of great info along with various hints that seemed to have given evidence to support my various theories in my previous article entitled Is It Time To Wake Up And Smell Burger King's New Coffee?

For starters, CEO of Tim Hortons Marc Caira was quick to give some facts on the Tim Hortons brand. He stated that every day on average 15% of Canadians walk into or go through a drive-through of a Tim Hortons. Caira added, "We hear stories of Canadians abroad, our soldiers out on a mission who look forward to shipments of our coffee."

Next Caira talked about introducing the rest of the world to Tim Hortons products. He referred to the new combined company as a "global powerhouse" putting Hortons in a position to take the brand "quickly and efficiently to a global customer base." Caira believes this will be achieved by experience and network of Burger King's management team - two items as part of the acquisition that you won't find on an income statement or balance sheet.

Then Alex Behring spoke, executive chairman of Burger King. He cleared up the misconception about the merger having tax-savings motives. First he stated, "This transaction is fundamentally about growth and the focus is on creating value to accelerated international expansion for both brands."

Next he pointed out that when all is said and done, the tax rates will be "pretty much" the same despite adding a global headquarters for the new company into Canada. That tax rate will remain in the "mid to high 20s."

It was further pointed out that Burger King will continue to pay taxes in the United States and Tim Hortons will continue to pay taxes in Canada. I'll add a few things since I'm seeing some talk from people about boycotting Burger King in protest which seems ridiculous (unless you genuinely don't like the food). One, Canada isn't exactly an enemy of the United States in the first place and our economies are intertwined.

Next, the real victims of any boycott efforts in the United States would be the franchisees since over 99% of Burger Kings are franchised. These franchisees pay a relatively tiny royalty fee off of gross sales to the parent company. You hurt the owners of these stores far more with a boycott than you do punishing the parent company. Most of the taxes earned and paid to the United States (and state and local governments) come from these franchisees whenever you buy a Whopper - not from the parent company.

Finally, the combined entities if successful in their plans will end up creating more tax revenue for both the United States and Canada than either ever paid on their own. And perhaps the best part is with a more aggressive international expansion is they both will bring more dollars out of foreign countries and into the United States and Canada. Everybody wins in my eyes.

Last but far from least, it was pointed out during the Q&A of the call that, despite media myths, the Burger King headquarters will in fact remain in the same place it's been for 60 years - Miami, Florida. I was going to say - what executives would want to move from that tropical paradise in the first place? The separate headquarters managing the two entities will be in Canada because there is a larger concentrated market there, but the Burger King specific headquarters isn't moving an inch.

To summarize, by CEO Daniel Swartz of Burger King (my emphasis added),

"Burger King pays federal and state and city taxes in the U.S. has been for a long time since 1954 and will continue to do so for the future. The business is going to be managed out of the U.S., our headquarters for Burger King will still be in Miami, will still be paying federal taxes, all the same taxes we were paying in the past in the U.S., we are going to continue to pay in the future in the U.S. Our rate won't change materially and we're going to continue to be a U.S. tax payer the corporation."

Case closed. Relax, boycotters, and have Big King with onion rings and wash it all down with a Tim Hortons coffee.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.