Burger King Worldwide Inc. (NYSE:BKW) agreement to acquire Tim Hortons Inc. (USA) (NYSE:THI) for $11 billion continues to elicit debate on Wall Street, especially on the motive of the merger. A valuation that represent 57% premium to last month share price also raises questions as to whether Burger King might have overpaid for the Canadian based company, according CNBC’s John Jannarone.
The pace at which American companies are merging with other foreign companies in order to escape high tax bills in the U.S. continues to gain momentum, highlighted by Burger King Worldwide Inc. (NYSE:BKW)’s latest deal. In a conference call, Burger King denied the claims that it was acquiring Tim Hortons Inc. (USA) (NYSE:THI) as a cost saving measure or with the intention of operating as an inversion.
Having pursued Tim Hortons for quite some time, Jannarone believes that Burger King Worldwide Inc. (NYSE:BKW) is planning to use the Canadian company to further its expansion plans to markets it has not tapped.
“Believe it or not I think this is actually an expansion story. What they can do is they can roll out a lot of this franchise stores in markets they are not operating now and if they do that, they are going to collect royalties […],” said Mr. Jannarone.
Tim Hortons Inc. (USA) (NYSE:THI) has not expanded to the levels that Burger King would have wanted according to Jannarone, thus the need to merge, to accelerate the plans. The need to push for international markets is one of the ways that Burger King is looking to compete against other big competitors in the space like McDonalds.
Both companies are set to argue with authorities that their combined entity will provide a fair level ground in terms of competition with companies like McDonald’s Corporation (NYSE:MCD) and Yum! Brands, Inc. (NYSE:YUM).
“The bottom line is they haven’t gone very far afield, and I think the hope here is that Burger King knows how to do that. They are not quite international as McDonalds, but they are still much-much more over the place than Tim Hortons is […],” said Mr. Jannarone.
Pershing Square’s Bill Ackman raised its stake by 8.29% in Burger King Worldwide Inc. (NYSE:BKW) to 38.39 million shares during the second quarter of 2014.