Burger King has announced plans to acquire Tim Hortons Inc. Following the merger, the fast-food company will become the third-largest in the world, with an estimated market cap value of $18 billion.
On Sunday, company executives announced plans for the merger. Burger King will movie their headquarters out of the United States, as Tim Hortons is a Canadian company.
As reported by the New York Times, the process is called “corporate inversion.” By relocating their headquarters to a different country, Burger King can expect to reduce their overall corporate taxes significantly.
Corporate inversion is not an uncommon practice. Prime interest rates have prompted several companies to make significant acquisitions. As other countries offer lower tax rates, American companies are far more likely to acquire foreign companies and move their headquarters abroad.
Currently, Canada’s corporate tax rate is around 15 percent. America’s tax rate is closer to 35 percent.
Although it may save companies money, corporate inversion has come under fire by President Barack Obama, who criticized the companies’ “herd mentality.”
For Burger King and Tim Hortons, the acquisition and tax inversion make good business sense. However, other companies have made a conscious decision to keep their headquarters in the United States, despite the obvious higher tax rates.
Most recently, Walgreen Co. acquired multinational retail pharmaceutical company Alliance Boots. Although Walgreen considered moving their headquarters abroad, company executives later changed their minds.
Walgreen officials said public reaction and the “long-term interest of shareholders” prompted their decision to keep their headquarters in the United States.
As reported by Reuters, Burger King is currently headquartered in Miami, Florida. The company has more than 13,000 locations worldwide, with a market cap value of more than $9 billion.
Following the merger, 3G Capital will remain the majority shareholders. In 2012, 3G purchased a majority of Burger King shares for $4 billion. Although 3G will maintain a majority of the shares, the company is expected to continue offering shares on the public market.
Tim Hortons is currently headquartered in Oakville, Ontario. With nearly 4,500 locations in the United States and Canada, the coffee and doughnut chain has a cap market value of more than $8 billion in the United States alone.
Company executives confirmed Burger King and Tim Hortons will continue to “operate as standalone brands.” Although the merger will secure Burger King as one of the most powerful fast food giants, they still face strong competition from McDonalds and Yum Brands, which owns KFC, Pizza Hut, and Taco Bell.
The Burger King Tim Hortons merger is expected to be complete before the end of the week.