Whopper of deal takes on double double look
Tim Horton’s to be managed as ‘ distinct brand’
TORONTO — The marriage of the Whopper and the Timbit moved one step closer to reality on Thursday with Industry Canada’s approval of Burger King Worldwide Inc.’ s $ 12.5- billion deal to buy Tim Hortons Inc.
It will be a corporate union only — stipulations about maintaining the coffee and doughnut chain’s Canadian identity ring loud and clear through Industry Minister James Moore’s statement announcing the federal government’s assent to Burger King’s application under the Investment Canada Act. The two also won’t get to share their brands at any locations in Canada or the United States in order “to manage Tim Hortons as a distinct brand.”
Burger King made several promises to Ottawa to secure the deal, including a vow to keep “100 per cent of existing employment levels” at Tim Hortons franchises across Canada; to keep a joint headquarters for the newly merged Tim Hortons and Burger King in the former’s current headquarters of Oakville, Ont., and to maintain “significant employment levels” at that facility; and to have Canadians make up at least 50 per cent of the membership of Tim Hortons’ board of directors.
Industry Canada also said Burger King would expand Tim Hortons in the United States and globally “at a significantly greater pace than currently planned.”
Tim Hortons unveiled its last strategic plan in May, more than three months before the Burger King deal was announced, saying it planned to open another 500 outlets in Canada during the next five years, as well as 300 in the U. S. and 220 in the Middle East. After the blockbuster deal was struck, neither chain gave specific updated growth targets, beyond saying the deal would accelerate Tim Hortons’ international
As Tim Hortons looks for suppliers and distribution networks, it will help expedite its expansion in the U. S. ROBERT CARTER EXECUTIVE DIRECTOR AT NPD GROUP CANADA
expansion plans.
The deal still requires shareholder approval.
Robert Carter, executive director at NPD Group Canada, said the deal stands to benefit both brands on their home turf.
“In the Canadian marketplace this will streamline back- of- house efficiencies from a vendor standpoint,” he said. “And I think Burger King will really benefit from aligning with Tim Hortons in this market, where they need to improve their operations. They are just not keeping pace even though the burger category itself is growing.”
Burger King’s Canadian traffic is down eight per cent year- over- year, according to NPD’s research, while overall traffic at burger restaurants is up three per cent year over year.
The deal also allows Tim Hortons to enter parts of the U. S. where Miami- based Burger King, by virtue of its presence and experience, has a far greater understanding of regional markets, Carter added.
“And as Tim Hortons looks for suppliers and distribution networks, it will help expedite its expansion in the U. S.”
Burger King has also vowed to maintain the current Canadian franchisee rent and royalty structure for five years and maintain existing levels of Tim Hortons’ charitable work and community initiatives across Canada.
“The result of this transaction is this new global company, with sales of more than $ 23 billion annually, which will now be based in Canada,” Moore said in a statement. “Our government is pleased to see companies like Burger King investing in Canada’s economy and looking to benefit from our low taxes and open markets.”
Discussions between the two quick- serve restaurant giants began in early March after Burger King chairman Alexandre Behring, managing partner of the burger giant’s majority shareholder New York- based 3G Capital, approached billionaire investor Warren Buffett to ask if Berkshire Hathaway would provide financing for a deal to combine the two restaurant chains.
With Berkshire Hathaway on board, Burger King approached Tim Hortons’ executives and raised its offer price three times to $ 88.50 before the coffee chain’s board finally accepted the fast- food giant’s proposal. That offer included a number of promises ensuring it would keep the Canadian brand’s heritage intact.
In October, the federal Competition Bureau approved Burger King’s plan to buy Tim Hortons, saying it would not likely reduce competition in the sector due to the large number competing fast food restaurant chains.
That same month, the Canadian Centre for Policy Alternatives predicted there would be massive layoffs and strict cost- cutting when Burger King’s parent company takes over.
The think- tank was critical of 3G Capital’s past takeovers, saying if the investment firm followed its typical pattern, Tim Hortons could lay off more than 700 employees, or 44 per cent of its non- restaurant staff, in order to manage the debt of the merged company.