The trend of U.S. Companies buying foreign companies and moving their legal home overseas continued last week when Burger King announced the purchase of Tim Hortons for $11.5 billion. Low interest rates have made it cheaper for companies to make acquisitions leading to a flurry of acquisition activity and increasing the number of corporate tax inversions. By changing the location of where the company is domiciled it typically allows that company to pay lower corporate taxes in the new country, in this case Canada, and avoid paying the higher tax rate in the United States.
However, Burger King Executives were quick to point out that this deal wasn't executed solely for tax savings, instead, strategic motives to grow both brands was the driving force behind the deal. It is believed that Tim Hortons coffee products can help Burger King compete with McDonald's in the fast-food breakfast market. It is also expected that Burger King can help Tim Hortons expand market share into the United States and overseas.
Although analysts and shareholders applaud this deal as a "smart play", Burger King has faced customer boycotts and backlash from domestic consumers, the effect of which on financial results is yet to be seen. This acquisition has the potential to be a strong long-term opportunity for both brands, but won't come without leaving a bad taste in the mouths of some customers.
Ethan Wade, Financial Advisor
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).