UPDATE 3-Burger King in talks to buy Canada's Tim Hortons

Mon Aug 25, 2014 1:01am EDT
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* Deal set to create fast food giant with $18 billion market cap

* Deal to be structured as a so-called tax inversion transaction

* 3G Capital to own majority of the shares in new combined entity (Adds analyst comment, background)

By Soyoung Kim and Euan Rocha

NEW YORK/TORONTO, Aug 24 (Reuters) - Burger King is in talks to acquire Canadian coffee and doughnut chain Tim Hortons Inc in a deal that would create a fast food powerhouse with a market capitalization of roughly $18 billion.

Burger King and Tim Hortons, comparable in size by market value, confirmed their merger discussions late on Sunday, saying the new company would be the world's third-largest quick service restaurant. It would be based in Canada, which has lower overall corporate taxes than the United States, especially for entities that have large amounts of earnings from overseas.

The proposed deal would be structured as a so-called tax inversion transaction to move Burger King's domicile out of the United States, and could come as soon as in the next few days, according to sources familiar with the discussions.

Recent attempts by companies for tax inversion deals, which are done to avoid higher U.S. taxes and save money on foreign earnings and cash held outside the United States, have drawn the attention of President Barack Obama, who criticized a "herd mentality" by companies seeking such deals.

Tax inversions have become popular in recent months as low interest rates are making it cheaper for companies to make acquisitions, KeyBanc analyst Christopher O'Cull wrote in a note to clients about the potential deal.   Continued...