Two days after confirming their talks on the idea, Canada’s biggest quick-service restaurant (QSR) chain and the world’s second-biggest burger chain have lined up their US$15.5 billion merger deal.
Burger King Worldwide and Tim Hortons on Tuesday announced a “definitive agreement” to combine the world’s fourth- and eighth-biggest QSR firms into the No. 3 spot, behind McDonald’s and KFC/Pizza Hut/Taco Bell owner Yum! Brands, but jumping ahead of Subway and one-time Tim Hortons owner Wendy’s.
The combined firm is to be a Canadian-headquartered operation with over 18,000 restaurants in about 100 countries and US$22.7 billion in combined system-wide sales.
However, the two firms said, both chains will continue to be “managed independently, while benefitting from global scale and reach and sharing of best practices.”
The new company would be listed on both the TSX and NYSE but headquartered in Canada, a “natural location” as the new company’s largest market, producing 67 per cent of its revenue, compared to 20 per cent in the U.S. and 13 per cent internationally.
The Burger King and Tim Hortons worldwide operations would continue to have their “global homes” based in Oakville, Ont. and Miami respectively, each managing their own relationships with franchisees.
The deal is expected to close later this year or in early 2015, first requiring approvals from Tim Hortons shareholders, U.S. and Canadian antitrust and competition watchdogs, and the Canadian government as per the Investment Canada Act. The two companies said they pledge “specific undertakings” regarding the new company’s plans and structure.
Burger King’s majority owner, investment firm 3G Capital, has already committed its stake to the deal, so a Burger King shareholder vote isn’t needed.
From a Timmy’s perspective, the two companies expect the deal will “accelerate the Tim Hortons brand in the rest of the world” and “facilitate additional investment in the Tim Hortons brand.”
Both companies’ boards have already approved the financial terms of the deal, which call for Tim Hortons shareholders to get C$65.50 cash plus 0.8025 common shares of the new company for each of their Tim Hortons (THI: TSX, NYSE) shares.
The deal also offers THI shareholders cash-only and stock-only options, worth C$88.50 per share or 3.0879 shares in the new company for each THI share respectively.
Burger King (BKI: NYSE) has organized US$12.5 billion in financing to cover the cash portion of the deal, plus $3 billion in “preferred equity financing” from Berkshire Hathaway, the investment firm led by U.S. billionaire Warren Buffett.
Burger King emphasized Berkshire is “simply a financing source and will not have any participation in management and operation of the business.”
Rio de Janeiro-based 3G, which owns about 70 per cent of Burger King, will convert its entire stake to shares in the new company, giving it 51 per cent control of the new firm while other BKI and THI shareholders would own 27 and 22 per cent respectively.
The deal also calls for 3G managing partner Alex Behring to become the new firm’s executive chairman and director, while Tim Hortons CEO Marc Caira would become vice-chairman and director. Burger King CEO Daniel Schwartz would become “group CEO” for the new firm.
The new company’s board of directors, meanwhile, is to include the eight current Burger King directors plus three to be designated by Tim Hortons, including Caira.
“Our combined size, international footprint and industry-leading growth trajectory will deliver superb value and opportunity for both Burger King and Tim Hortons shareholders, our dedicated employees, strong franchisees, and partners,” Behring said in Tuesday’s release.
“As an independent brand within the new company, this transaction will enable us to move more quickly and efficiently to bring Tim Hortons’ iconic Canadian brand to a new global customer base,” Caira added in the same release.
Tim Hortons, the two firms emphasized, will “continue its significant community involvement” including the Tim Horton Children’s Foundation, TimBits minor sports program, Tim Hortons Coffee Partnership and other “community, sustainability and charitable programs.” — AGCanada.com Network