In Maclean’s, Jason Kirby looks for reasons why Tim Hortons is interested in a deal with Burger King:
For starters, letâs consider Burger Kingâs motivation for buying Tim Hortons. It is not looking for synergies. Donât expect to see Burger King roll out twinned stores, with one counter selling Whoppers, the other Timbits, as per Wendyâs strategy when it owned Tims. Instead, Burger King wants to avoid paying U.S. taxes. If the deal goes ahead (no agreement has been finalized) Burger King will achieve this through whatâs known as a âtax inversion.â It would buy Tim Hortons, then declare the newly merged company to be Canadian. And because companies in Canada enjoy a lower corporate tax rate than those in America â 15 per cent in Canada compared to an official U.S. rate of 35 per cent â Burger Kingâs future tax bills could be a lot smaller.
Canada, it would seem, is the new Delaware.
So Burger King is buying Tim Hortons, but in doing so, the combined Tim Hortons and Burger King will be financially engineered to be Canadian, at least on paper. A statement released by the companies following the Wall Street Journal‘s initial report on the deal said Burger Kingâs largest shareholder, 3G Capital, a Brazilian private equity firm, would own the majority of the shares of the newly created company. And you can be sure any tax savings will flow back to shareholders in the form of higher dividends.
Itâs clear whatâs driving Burger King to pursue this deal. But thereâs been far less attention paid to the question: whatâs in this for Tim Hortons?
According to Tim Hortons, the answer â as it unceasingly has been for the past two decades â is the pursuit of international growth. In the statement from Tim Hortons and Burger King, the companies said the coffee chain will have âthe potential to leverage Burger Kingâs worldwide footprint and experience in global development to accelerate Tim Hortons growth in international markets.â
Update: Kevin Williamson points out that relatively few US companies actually relocate to other countries now, but that the number is clearly increasing and knee-jerk reactions to that by politicians may well make it worse.
There are trillions of dollars in U.S. corporate earnings parked overseas, and progressives want the government to shove its greedy snout all up in that, denouncing âcorporate cash hoardersâ and blaming un-repatriated corporate earnings for everything from the weak job market to chronic halitosis. Harebrained schemes for putting that corporate cash in government coffers abound. So the current balance could quite easily be tipped. And after years of ad-hocracy under Barack Obama et al., U.S.-style ârule of lawâ may not be as attractive as it once was. A few more arbitrary NLRB decisions or political jihads from the IRS could change a few minds about the value of U.S. law and governance.
The question isnât whether you can bully Walgreens out of its plan to move to Switzerland. The question is whether the next Apple or Pfizer ever puts down legal roots in the United States in the first place. Right now, the friction works in favor of the United States, but there is no reason to believe that that will always be the case. You think that Singapore wouldnât like to be the worldâs banking or pharmaceutical capital? That Seoul lacks ambition? That the Scots who brought us the Enlightenment canât run a decent system of law and property rights? Burger King is not talking about moving to some steamy banana republic for tax purposes, but to stodgy, stable, predictable, boring old Canada. Boring and predictable looks pretty good if youâre Burger King, especially when the alternative is unpredictable and expensive. Unpredictable and expensive is what you date when youâre young and stupid â you donât marry it.
Update the second:
