Tim Hortons' takeover faces few Canadian hurdles
Toronto • Burger King Worldwide Inc.'s $11.4 billion takeover of Tim Hortons Inc. is likely to go through with little objection from regulators or shareholders - at least in Canada.
Under the terms of the deal, Tim Hortons investors will receive $60.26 in cash and 0.8025 of a share in the combined entity that will be domiciled in Canada. That amounts to roughly $86 a share, based on Burger King's closing price Aug. 25 before the terms of the deal were announced.
"It's a done deal, nobody is going to say no to $86," said David Baskin, president of Baskin Financial Services Inc. in Toronto. His firm manages $644 million and holds shares of Oakville, Ontario-based Tim Hortons. "I'm very happy with the amount. It's much more than we expected, frankly."
The combined company will be headquartered in a yet-to-be-determined Canadian location, a so-called tax inversion, and could potentially lower the merged company's tax rate.
Canada's foreign investment agency will follow regular practice and review the proposed transaction, Finance Minister Joe Oliver said Tuesday. All foreign takeovers worth at least $326 million are examined to ensure they are in the long-term interests of the Canadian economy.
"Canada has become a very attractive place for capital and for growing businesses," Oliver told reporters in Toronto. "This is an acquisition which will be evaluated by Investment Canada to determine whether it's a net benefit to the country," he said, referring to the review panel.
Other investors have either sold their positions in Tim Hortons or are preparing to do so.
"The easy money's been made on this stock, now you're taking more risk in betting that there's a lot more upside here," said Brian Huen, managing director at Red Sky Capital Management in Toronto. His firm manages about $230 million and sold its shares of Tim Hortons Tuesday. "There's been a lot of return that's been generated as a result of this deal over a very short period of time."
The transaction is still subject to regulatory approval and a shareholder vote at Tim Hortons. Since 3G Capital Inc. owns 70 percent of Burger King's shares and has approved of the transaction that will see it own 51 percent of the combined company, no shareholder vote will be required at that company, the firms said during a conference call Tuesday.
"There's always a risk, that's why it isn't trading at $86, so there's a little bit of uncertainty," said Frank Maeba, managing director at Breton Hill Capital in Toronto. The firm manages about $660 million, with Tim Hortons one of its largest positions. "These tax inversions are a loophole the U.S. will look to close in the future."
Tim Hortons rose 8.1 percent to close at $79.26 in Toronto Tuesday. The shares have surged 43 percent this year compared with a 15 percent gain in the benchmark Standard & Poor's/TSX Composite Index. Burger King's shares fell 4.3 percent to $31 in New York.
White House spokesman Josh Earnest told reporters in Washington Tuesday the administration is considering a range of options to make tax inversions less appealing. "It certainly isn't fair to the millions of middle-class families in this country that don't have that option," he said.
Oliver didn't provide a timeline on how long the review would take. Under the law, Canada has 45 days to review deals once a foreign investor has applied for approval. The government can unilaterally extend the deadline by 30 days, and the investor must agree to any further extensions.
The takeover should be approved without major conditions according to Lawson Hunter, lawyer for Stikeman Elliott in Ottawa and a former head of the Competition Bureau.
"It's pretty hard to see why it would be turned down," Hunter said. "I mean, the Prime Minister likes Tim Hortons, but I would think this will be treated as a pretty normal transaction."
The companies said they expect the takeover to be completed late this year or early next year.
Breton Hill will sell some of its Tim Hortons shares as the stock is starting to look expensive compared with its peers, Maeba said.
"We'll take some profits now after the big pop," he said.