Tim Horton’s and Burger King Merger

Tim Horton’s and Burger King Merger
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Tim Horton’s and Burger King Merger
Burger King is the second largest hamburger and fast food chain of restaurants in the United States of America. It owns and franchises restaurants all over the world and has the capacity to serve over 2.3 billion customers yearly. It was established in 1953 with the name Insta-Burger King, based in Jacksonville, Florida. After a year, due to financial constraints, two of its franchisees from Miami, purchased it and rebranded it as Burger King. The company has later changed ownership four times and became public in 2002. Towards the end of 2010, Brazilian company 3G Capital acquired majority shareholding in Burger King and currently retains about 70% ownership of the global company.
In Burger Kings 2013 annual report, it stated it had over 13,000 outlets all over 79 countries. Its products range from burgers, French fries, milkshakes, salads, soft drinks to breakfast and other food items. Burger King has long been ranked as the second largest fast food restaurant behind McDonalds in terms of sales. From 2010, it started collaborating with Seattle’s Best Coffee and introduced premium coffee, chipotle and donut bites in its menu.
Tim Hortons is an international fast spontaneous restaurant famous for its coffee and doughnuts. It is the largest fast food service company in Canada owning 4,592 cafés in Canada and over 800 in USA. By 2002, the franchise had double the outlets McDonalds had in Canada and was the largest food service company in the country. Tim Horton controls more than half of the baked goods and coffee market in Canada.
In 2014, Burger King merged with Tim Hortons, forming a company owned by the Brazilian firm 3G Capital. The resulting organization will be the third largest fast food service provider in the world with over 18000 restaurants and 100 countries. The resulting company from the merger was registered in both the New York Stock Exchange and in Canada in the Toronto Stock Exchange. However, the move by Burger King was seen as an attempt to avoid high tax bills in the U.S.A.
Your position (do you agree/disagree?)
I agree with the move of the two food service operators merging. It has good strategic benefits, and both parties will enjoy increased sales, brand diversification and potential future growth. The move will help increase the number of restaurants in the world and have continuously rising sales and profits. The move was an optimal cost cutting measure to relocate its headquarters to Ontario Canada where it would be liable to pay a tax ratio lower than that it would have paid in the United States of America. However, the move is majorly viewed as a tax inversion move where Burger King seems to be evading paying its fair share of taxes.

Whom does it benefit more?
I think Burger King may stand a chance to benefit more from the merger. The merger resulted in Burger King gaining access to Tim Hortons brand which has a cult following. This improved Burger Kings sales and increased its market to breakfast customers who are able to buy coffee at the fast food outlets. Tim Hortons also allowed Burger King to enter the grocery business through selling packed coffee at supermarkets around North America.
Burger kings merger with Tim Hortons is in line with the American company’s strategy to expand internationally. The move provides burger king with a competitive gain and helps it close the gap between the industry leaders and the fast food chain. Moreover, this will help burger king draw more customers and build on the customer’s confidence.
However, according to reports both companies benefited greatly from the merger. Burger Kings stock value rose by 20 percent, its biggest jump since its stock debuted on the New York Stock Exchange in 2012. Tim Hortons value also increased by 19 percent hitting a record high. The stock gains in turn made the two companies market values increase significantly.
The tax money saved by Burger King can be utilized in reinvesting in other activities or funding dividends and buying back shares.
The political argument (who really benefits?
The merger reintroduced the debate over American companies evading high tax bills by moving their headquarters to other countries. A move commonly called inversion. President Obama heavily criticized this trend, with his supporters vowing the administration would take measures to control the practice.
From 2012, about 21 American companies have completed or announced similar deals. Companies like Burger King which pay a tax rate below 40 percent, operate in a blend of tax jurisdictions. In 2013, its effective tax rate was 27.5 and Slabaugh a financial analyst from Stephens Inc. asserted that it would gradually rise to 35 percent thus justifying the tax save by the fast food operator.
In the end, Burger King will benefit greatly from the merger. It will have more products to sell, gain a brand that has loyal customers therefore easily expand globally and at the same time avoid the possibility of paying higher taxes.