Burger King announced it will continue with its plans to acquire Tim Horton's in spite of the changes made by the United States Treasury Department.
Fortune Magazine is reporting that shareholders of the fast food chain would lose enough control in new company to escape the new provisions.
The White House yesterday announced new rules aimed at slowing down a rash of tax inversion deals, in which U.S. companies buy a smaller foreign company for the purpose of shielding millions of dollars form Uncle Sam.
The most notable of these proposed transactions has been Miami, Fla.-based Burger King's pending takeover of Canadian coffee-and-doughnut chain Tim Hortons, thus leading many news organizations to put images of the fast-food chain next to their coverage of the White House action.
The Treasury Department set a ceiling of 80 percent for the American company's stockholders. For a company to merge with an out-of-country corporation, the American corporation may not possess more than 80 percent of the combined corporations' stock. Currently, Burger King owns about 51 percent of what would be the combined stock, well under what the Treasury Department had set.
The Treasury Department did discuss making the threshold 50 percent, but that would require a corporate tax reform legislation passed by Congress.
The Street is reporting that regardless of the new Treasury Department information, the merger will go on as expected.
"This deal has always been driven by long-term growth and not by tax benefits," the companies said in a joint statement.
The Street has listed Burger King (BKW) stock as a solid purchase for both the immediate and long-term future. The analysts see Burger King as making a positive move in an industry that has become stagnant. They feel this merger will breathe a new life in the fast food industry. And, the breakfast market will definitely be buzzing with such a well-established breakfast entity as Tim Horton's making a nation-wide presence in the US markets.
Burger King has also outdone itself in other areas. Net operating cash flow has significantly increased by 71.15% to $87.80 million when compared to the same quarter last year. In addition, Burger King Worldwide (BKW) has also vastly surpassed the industry average cash flow growth rate of -5.08%.
The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Hotels, Restaurants & Leisure industry average. The net income increased by 19.4% when compared to the same quarter one year prior, going from $62.90 million to $75.10 million.
All signs and indicators appear to show that Burger King, with Tim Horton's by its side, is ready to set a new standard for the food service industry. Let's watch and see how this all breaks down...
[Image courtesy of Canadian Times]