Yesterday Burger chain Burger King and Canadian Coffee and Donut Chain Tim Hortons confirmed they are in talks to join forces.
Shares in Burger King and Tim Horton's have jumped dramatically in pre-market trading in New York on this news.
It’s not known what such a deal would be worth, but both stocks surged, with U.S.-based Burger King up 16.2 per cent to $27.11 (U.S.)
Shares in Tim Hortons jumped 16.96 per cent to $62.84.
An agreement could be reached as soon as this week, a person briefed on the matter told The New York Times.
If Burger King joins forces with Tim Hortons, the new publicly traded company would be based in Canada and would have tax advantages for the U.S.-based burger chain.
Business commentator Michael Hlinka said on CBC Toronto's Metro Morning on Monday that Burger King may be making a "tax inversion" play with this move. The U.S. corporate tax rate is about 35 per cent, while Canada's, depending on the province, is around 26 per cent. "There's that extra nine per cent of value that they're right now giving away," said Hlinka.
Beyond tax savings, Burger King may also be trying to keep pace with a key competitor, Hlinka said.
"McDonald's has become very serious about making a good cup of coffee in the past several years and Burger King hasn't really stepped up, so maybe this is how they're going to compete with McDonald's globally," he said.
"If Tim Hortons gets its coffee into all those Burger King stores worldwide, that would be absolutely huge for it, and I think that might be part of this strategy as well," he said.
Tim Hortons and Burger King confirm talks regarding potential strategic transactionIn response to media reports, Tim Hortons Inc. (THI: TSX; NYSE) and Burger King Worldwide Inc. (BKW: NYSE) today confirmed that they are in discussions regarding the potential creation of a global leader in the quick service restaurant business. The new publicly-listed company would be headquartered in Canada, the largest market of the combined company.
3G Capital, the majority owner of Burger King, will continue to own the majority of the shares of the new company on a pro forma basis, with the remainder held by existing shareholders of Tim Hortons and Burger King. 3G Capital and its affiliates have a demonstrated track record of managing international expansion of iconic brands around the globe.
Within this new entity, Tim Hortons and Burger King would operate as standalone brands, while benefiting from shared corporate services, best practices and global scale and reach. A key driver of these discussions is the potential to leverage Burger King's worldwide footprint and experience in global development to accelerate Tim Hortons growth in international markets.
The new company would be the world's third-largest quick service restaurant company, with approximately $22 billion in system sales and over 18,000 restaurants in 100 countries worldwide. Tim Hortons and Burger King each have strong franchisee networks and iconic brands that are loved by their respective consumers. Any transaction will be structured to preserve these relationships and deepen the connections each brand has with its guests, franchisees, employees and communities.
The transaction remains subject to negotiation of definitive agreements. There can be no assurance that any agreement will be reached or that a transaction will be consummated.
Tim Hortons and Burger King do not intend to comment on this matter further unless and until a transaction is agreed or discussions are discontinued, and specifically disclaim any obligation to provide further updates to the market.