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Tim Hortons agrees to Burger King offer for $94 a share
- hadoukenio 12y agoIt's all to do with periodical cicadas populations.
- uladzislau 12y agoDiscussion of the merger talks from yesterday https://news.ycombinator.com/item?id=8222432 https://news.ycombinator.com/item?id=8222432
- cryptoz 12y agoDaniel Schwartz, CEO of Burger King, is known for being unusual in his industry: http://money.cnn.com/2014/08/25/investing/burger-king-ceo-age-33/ http://money.cnn.com/2014/08/25/investing/burger-king-ceo-ag...
- luckyno13 12y agoAll I want to know is whether I can get Timbits in the South Eastern U.S. as a result of this :)
- ipsin 12y agoOddly the article doesn't seem to explain why this sort of deal makes sense: 1) Overseas cash for a U.S. corporation isn't taxed unless it's brought into the U.S., so if you have a pile of overseas cash, why not buy something? 2) Moving your headquarters to a country with a lower corporate tax rate can also be good (though I believe Canada has a lower stated corporate tax rate, I'm not sure how its effective corporate tax rate compares to the U.S.) http://en.wikipedia.org/wiki/Tax_inversion http://en.wikipedia.org/wiki/Tax_inversion
- wclax04 12y agoReduces their tax rate by 14%: https://openfolio.com/insights/117/tax-inversion-deals-continue-burger-king-looks-to-reduce-tax-rate-14-by-moving-to-canada/ https://openfolio.com/insights/117/tax-inversion-deals-conti...
- Thaxll 12y agoCorporate taxes in the states : 40%, in Canada : 25%
- masmullin 12y agoYou're forgetting provincial taxes. Check out the KPMG report which shows that Canadian Corporate Tax rates are generally 38%. There are some loopholes to lower that rate http://www.kpmg.com/ca/en/issuesandinsights/articlespublications/pages/taxrates.aspx http://www.kpmg.com/ca/en/issuesandinsights/articlespublicat...
- tixocloud 12y agoCanada has a Effective Corporate Income Tax Rate of 7.2% while the United States is 28.5% though it looks like it varies from sector to sector. Source: Appendix A (pg. 22) http://www.kpmg.com/Ca/en/services/Tax/Focus-on-Tax/Documents/kpmg-focus-on-tax-2014-en.pdf http://www.kpmg.com/Ca/en/services/Tax/Focus-on-Tax/Document...
- waterside81 12y agoThat seems to be only Federal rate - you have to pay corporate tax to the province as well. Tim's is based in Ontario, so they'll likely be paying closer to 25% once all is said & done.
- deleted 12y ago[deleted]
- FD3SA 12y agoA fascinating document, thank you for the link. As a Canadian, I'm quite disturbed by these numbers, since the "trickle-down" theory that these tax rates are based on have been proven false by Thomas Piketty's work. Ironically, McDonald's and a few other large corporations have recently been in the spotlight for hiring Temporary Foreign Workers (TFW) in urban areas with very high unemployment rates. The Canadian tax payer is beginning to understand that giving corporations a free pass to make outsize profits doesn't help them in the slightest. Canadian income tax is comparable to NY state, but apparently our oligarchs get a free pass (7.2% effective income tax!). Truly absurd.
- booruguru 12y agoYou're forgetting provincial taxes. They were talking about this last night on <strike>The Lang and O'Leary Exchange</strike> The Exchange. Evidently, after considering all levels of government taxation, Burger King is only going to save around 1% tax.
- apendleton 12y agoThe real story here is in the nature of the acquisition, a so-called "inversion" that will create a combined Canadian, rather than American, company, which is likely to substantially reduce Burger King's corporate tax liability.
- fddr 12y agoThis is not entirely correct. The reduction in tax liabilities will be much smaller than you might expect and this is not a merger motivated purely by that. For an in depth discussion see [1]. [1] http://www.bloombergview.com/articles/2014-08-25/burger-king-may-move-to-canada-for-the-donuts http://www.bloombergview.com/articles/2014-08-25/burger-king....
- araes 12y agoVery interesting read, and thanks for the link. Had no idea that the King had fallen on such hard times (or maybe that Tim was comparatively doing so well) Almost double the owned assets ($1.5 B vs $0.8 B) and nearly triple the total revenue ($3.0 B vs $1.1 B). The King may be valued higher for its IP, but it appears like Tim is running a significantly better core business. Admittedly, Tim is basically a monopoly in its home market. At best, this looks like a merger of equals, rather than an inversion; if not a big, but unknown, player buying a weak, but well known, competitor in a new market. Very similar tact as many foreign companies (UK, Japan, German, Chinese) have done in other sectors like tech (doubled from 1996-2005). [1] http://www.reuters.com/article/2008/08/27/us-companies-ownership-usa-idUSN2744743020080827 http://www.reuters.com/article/2008/08/27/us-companies-owner...
- apendleton 12y agoRight, I don't think that's the only motivation, but it seems like it's at least part of it. If I read that article correctly, almost half of Burger King's locations are outside the US and Canada, and the revenue all of those locations, as well as the Canadian ones (however many of those there are) should see a reduction in tax liability; further, that slice of the pie is growing, as Burger King's US presence is shrinking while its foreign presence is growing.
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- cvburgess 12y agoThe only real reason for this merger is a corporate inversion[1] - a lot of companies are doing it. Corporate inversions allow you to move your HQ outside of the US and reap huge tax benefits. [1] https://en.wikipedia.org/wiki/Corporate_inversion https://en.wikipedia.org/wiki/Corporate_inversion
- throwaway283719 12y agoNot true. It might be a reason but it's not the only reason, and certainly not the primary reason. At the moment Burger King pays tax at a rate of 35% or thereabouts, on all of its income, no matter where it is generated. About half of its income is from the US, and half is overseas. After the acquisition, it will still pay 35% tax on all of its income generated in the US, however it will only pay the local tax rate on its income generated outside the US. For example, this is about 15% in Canada, and 21% in the UK (there aren't many countries where corporation tax is above 35%... Japan comes to mind). So the saving is the difference between the local corporation tax and the US corporation tax, on about half of BK's income - if the average worldwide corporation tax is 20%, so the difference is 15% and half that is 7.5%. So this is equivalent to reducing the rate of corporation tax in the US from 35% to 27.5%. While nice, it's not quite the "huge tax benefit" that you mention.
- neilc 12y ago> there aren't many countries where corporation tax is above 35%... Japan comes to mind Japan's is only slightly higher, at 35.64%: http://www.kpmg.com/global/en/services/tax/tax-tools-and-resources/pages/corporate-tax-rates-table.aspx http://www.kpmg.com/global/en/services/tax/tax-tools-and-res... but that will actually be cut below 30% in the near future: http://money.cnn.com/2014/06/24/news/economy/japan-abenomics-tax/ http://money.cnn.com/2014/06/24/news/economy/japan-abenomics...
- Raphmedia 12y agoThis is strange to me. I see a lot of burger kings closing up while tims are going strong.
- martingordon 12y agoGlad to see that the Burger King business unit will stay in Miami: http://www.miamiherald.com/2014/08/25/4308025/burger-king-in-talks-to-buy-tim.html http://www.miamiherald.com/2014/08/25/4308025/burger-king-in...
- howeyc 12y agoAs a Canadian working in the US, I have a pipe dream. All Burger Kings turn in to Tim Horton's. Would be awesome.
- laxatives 12y agoProbably a little irrational, but I think of Tim Horton's as significantly more palatable than Burger King. Might be because I'm from the US and only have good memories of getting 30 cent donuts when I was visiting.
- bhouston 12y agoThe growth potential for Tim Hortons seems limited in my opinion -- it will continue to fill each corner of Canada, but we already know that and this is priced into its existing valuation. It dominantes Canada but that is because it is seen as part of Canadiana. It's attempts to expand into the US have generally not succeeded.[1] Both are already large enough to have economies of scale in terms of purchasing power, thus I do not see the reason for this outside of tax savings. Strangely, a lot of Tim Hortons in Canada share buildings with Wendy's. Thus there is some cross pollination there between these two, maybe the strategy is to take this to the extreme and have nearly each Tim Horton's location be paired with a Burger King. BTW some of the richest people I know (10,000 sq ft homes) own Tim Horton franchises (usually in central locations in major cities.) A boring business compared to startups, but damn it can be crazy profitable. Might be the time to snap those locations up if they are going to do some major US expansion. [1] See https://en.wikipedia.org/wiki/Tim_Hortons#Northeastern_US_decline https://en.wikipedia.org/wiki/Tim_Hortons#Northeastern_US_de... But another commenter disputes that and he may have more recent information.
- LaikaF 12y agoI believe Burger King wants to move it's head quarters to canada for lower taxes.
- misiti3780 12y agoits already dominating Western New York and growing in NYS in general. There is one in Penn Station in Manhattan now.
- bhouston 12y ago> its already dominating Western New York and growing in NYS in general. Really? Maybe things changed. Because a few years ago, I had read that some of its US expansion plans hadn't worked out, see here: https://en.wikipedia.org/wiki/Tim_Hortons#Northeastern_US_decline https://en.wikipedia.org/wiki/Tim_Hortons#Northeastern_US_de...
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- jstalin 12y agoJust for some context, Burger King had $233 million of net income in 2013 and paid $88 million in income taxes. http://investor.bk.com/download_arquivos.asp?id_arquivo=C0B7F543-DEA6-4852-ACB8-F589DFD66CC7 http://investor.bk.com/download_arquivos.asp?id_arquivo=C0B7...
- Phlarp 12y agoPerhaps I'm ignorant, but this seems like and insane corporate tax burden compared to what many (most?) large organizations are reported to be paying. Can anyone explain if my assumption is wrong or why they pay so much?
- jstalin 12y agoBecause you only hear about the outliers that have gigantic losses that they carry forward to reduce their tax burden in future years (like GE). Most corporations don't avoid taxation to the extent that the popular consciousness seems to think. Even gigantic, evil Exxon Mobil paid a lot of taxes. In 2013 they paid $24 billion in taxes on $57 billion in pre-tax income. http://cdn.exxonmobil.com/en/shareholder-archive/~/media/Reports/Other%20Reports/2014/2013_ExxonMobil_Financials.pdf http://cdn.exxonmobil.com/en/shareholder-archive/~/media/Rep...
- adventured 12y agoIt's not an insane tax burden in the US, it's common. Most corporations get socked with a high rate; most can't dodge taxes as effectively as some multi-nationals. Exxon paid $86 billion in corporate income taxes the last three fiscal years. They generated $118 billion in net income by comparison. Talk about a tax hammer. Chevron is roughly the same. Facebook had a $1.25 billion income tax last year, and generated $1.49 billion in net income. It's popular in the media to pretend corporations evade taxes universally. The fact is, very few are able to. If you remove about 50 huge corporations from the pool that avoid taxes very skillfully and have large incomes, the average corporate income tax rate in the US is typically closer to 27% to 30%, versus the more often quoted 22% to 25%.
- ctdonath 12y agoHere's hoping this means TH goes national (if not worldwide). We need a TH in Atlanta; good coffee, donuts better than Krispy Kreme and Dunkin Donuts. Recalls my notion of a "Franchise In A Box": in a shipping container, pack up all the necessities for installing/opening a retail store/restaurant overnight in a typical retail space, and rapid removal if needed. Good for short-use venue events such as major conventions, or for jumpstarting a business by opening a functional (albeit minimal) store in available short-lease space while a more elaborate/complete/larger implementation is being installed. I mention this as an eager would-be customer, wishing that BK (having more interest in "lower 48" USA expansion than pre-merger TH) could now just arrange some short-term leases, rent a "Tim Hortons In A Box", and open a few test/introductory locations within a few days. I want my Tim's! Moreso, my Canadian wife wants a Tim's in Atlanta ASAP, and ya gotta realize that to Canadians, Tim Hortons is like Starbucks deified.
- levesque 12y agoI really wouldn't say Tim Hortons' coffe is good... I guess it is a matter of taste.
- igrekel 12y agoI suspects, it got its reputation of having good coffee when most coffees were burnt and undrinkable.
- jareds 12y agoI guess it depends on taste. I prefer Tim Horton's coffee to Starbucks if there both black.
- slantyyz 12y agoAgreed. Of the "cheap" coffees in Canada, I'd rather drink Country Style or McDonald's. Well, at least Tim Horton's tastes better than Coffee Time.
- DigitalJack 12y agoThe shipping container idea is pretty interesting. Food trucks kind of do this, but I like the idea of a just-in-time franchise. Maybe look to the micro-house movement for ideas on plumbing issues and that sort of thing. I have a friend that feels the same way about Tim's. Maybe if I ever have a chance to try it I'd understand. My wife says my taste buds are deaf, so I may not appreciate it. I drink folgers, mainly for the caffeine. I appreciate a good cup of coffee, but not enough to spend the money for it.
- iillmaticc 12y agoTwo companies...one mediocre...one I don't believe large enough to pull the deadweight of the other...trying to mitigate tax burden and safe face.......Where I went to University there was a Burger King that was right by my old apartment and it just so happened to sit on a huge piece of property...and property there wasn't cheap (relatively speaking) and we prayed for 5 years that'd they sell it and put in a Panera Bread.
- waterside81 12y agoI'm sure other Canadians on HN might agree - it feels a little weird to see our darling Tim Horton's on the front page of US business sites (and HN of all places!) and to see words like "double-double" and "timbits" used.
- igrekel 12y agoRight, what's next? roll up the rim to win?
- erdle 12y agoSay goodbye to the prizes.
- adestefan 12y agoIt has been almost 200 years since you won the War of 1812. Maybe this the first salvo in Tim's conquering the US market.
- masmullin 12y agoLets all raise a Double Double for August the 24th, 1814.
- adventured 12y agoThat has to be a joke, right? You mean since the British won the war of 1812.
- adestefan 12y agoNo one really won the War of 1812. Instead everyone just got sick of fighting (the Americans got sick of spending money they didn't have and the British needed to worry more about Napoleon) and said let's act like nothing happened. A lot of people agree that because no one pushed for serious concessions in land or reparations the Treaty of Ghent is one of the main factors that allowed for the close relationship between the American, British, and indirectly, the Canadians for the 200 years following the war. So the running joke is that Canada won, even though Canada didn't even exists because the British retained what then became Canada. There was one true loser though and that was the Native Americans. Most allied with the British and in the end they basically turned their back on the tribes and let the American do whatever they wanted to the Natives as they pushed west.
- johnward 12y agoI don't get Tim Hortons. Maybe because I'm an American but I feel like other Americans don't really get Tim Hortons as much as Canada does.
- guiomie 12y agoI attribute Tim Hortons success in part because of patriotism. People go there because it is Canadian and also because it is cheap. If you drink your coffee "double double", it's fine coffee. As for the food it isn't expensive and has the impression of being fresh. They actually don't bake the donut in store anymore, but un-freeze them. Personally, I'm more of a Starbucks fan since I drink my drip black. My hope is that they close some Timmies down to open some Burger Kings. Burger Kings has the best poutine in my opinion. Burger Kings are rare these days in Canada.
- orbitur 12y ago> People go there because it is Canadian and also because it is cheap Because it's cheap, yes, because it's Canadian, probably not. Tim's effectively owns the market for cheap coffee. There's no where else you can go except a gas station, if you want cheap coffee. McD's has made some headway, but they've got their own thing outside of TH's narrow focus.
- slantyyz 12y ago>> If you drink your coffee "double double", it's fine coffee If you drink your coffee that way, it's fine coffee flavored sugar. If you drink Tim's coffee as regular, it tastes like water. >> My hope is that they close some Timmies down to open some Burger Kings. In the 416/905, we have a lot of Tim Horton's + Wendy's locations left over from when they were owned by Wendy's. I wonder if the Wendy's half of those locations will be converted to BK.
- guiomie 12y agoThat would be a great move. Wendy's is really most trashy fast food chain out there. The one in my city still has carpet in it...
- VLM 12y agoMissing some obvious LOTR here, "return of the King" and "One does not simply walk into Canada". You even have the competition, Ronald McDonald, as a stand in for sauron. I've been looking at it like a near startup style pivot. Can't out mcdonalds the mcdonalds company? Well then pivot and try selling unburned coffee and donuts. It could work.
- somberi 12y agoTim Hortons has been owned by a large U.S. chain before. It was spun off from Wendy’s in 2006 and became a publicly listed company that is now widely held by Canadian financial institutions, without one controlling shareholder (Quoting from The Star). Reproducing relevant parts from an recent article from The Economist: America’s corporate tax has two horrible flaws. The first is the tax rate, which at 35% is the highest among the 34 mostly rich-country members of the OECD. Yet it raises less revenue than the OECD average thanks to myriad loopholes and tax breaks aimed at everything from machinery investment to NASCAR race tracks. Last year these breaks cost $150 billion in forgone revenue, more than half of what America collected in total corporate taxes. The second flaw is that America levies tax on a company’s income no matter where in the world it is earned. In contrast, every other large rich country taxes only income earned within its borders. Here, too, America’s system is absurdly ineffective at collecting money. Firms do not have to pay tax on foreign profits until they bring them back home. Not surprisingly, many do not: American multinationals have some $2 trillion sitting on their foreign units’ balance-sheets, and growing. The real solution is to lower the corporate rate, eliminate tax breaks and move America from a worldwide system to a territorial one.
- bellerocky 12y agoI've never heard anyone say that American corporations pay too much taxes before. That's a first. It's always that they're getting away with paying not enough.
- DSMan195276 12y agoStrictly speaking, that's partly what he said (IE. The tax rate is much higher, however loopholes means they end-up with much less tax in the end). Lowering the tax rate could still result in companies overall paying more tax if tax breaks are removed.
- jmulho 12y agoI appreciate the content of your post, but I'd like to know for sure who is saying what. Please use quotes when quoting. Links to the source would be nice, too. I believed the first sentence to be yours until I got to the end of it. Is the last sentence is yours or The Enconomist's?
- Scoundreller 12y ago"But Burger King already managed to get its tax rate down to 27.5 per cent last year, company filings show. Tim Hortons paid 26.8 per cent tax in Canada last year, according the its annual report." Of course, these are the mean interest rates. If it has the opportunity to shift higher-than-average taxes into lower ones by geo-shifting, without affecting its lower-than-average taxes, it's average rate will go down.
- todd8 12y agoOnce upon a time, I was an engineer with only the most superficial understanding of taxes and the economy. Today, I'm still only an engineer (at heart), but in the many many years of working and investing I've learned a few things. (I have only had one formal course in economics. At least it was taught by Robert Solow.) Those that already understand the corporate tax even a little should probably skip this post (and to those that really understand it feel free to correct me where I don't understand it well enough). Taxes and their effects are considerably more complex in real life than my examples below. When a partnership makes money, the profits flow through to the partners and are taxed as ordinary income, so to compare: XYZ Parners (having 10 equal parners) makes $10,000,000 Tom (a parner) has: Additional ordinary income: $1,000,000 Taxes: Federal (%39.6) -$396,000 State (CA %12.3) -$123,000 ---------------------------------------- Net: $481,000 ABC Corp (with say 10 owners) makes $10,000,000 in profit Corporate profits $10,000,000 Taxes: Federal (%35) -$3,500,000 State (CA %8.84) -$ 884,000 ---------------------------------------- Net: $ 5,616,000 Note that this $5,616,000 can be retained by the corporation, but nobody actually benefits from it until it is distributed to the owners, distributed to it ten owners as dividends: Tina (an owner) receives $561,600 dividend payment Additional investment income of $561,600 Taxes: Federal (%23.8) -$133,661 State (CA %8.84) -$ 49,645 ---------------------------------------------------- Net: $378,294 There are a few things to notice here, before an owner gets any money out of a C corp, there are four taxes leveied and over %60 of the company's profits are taxed away. This puts corporations at a disadvantage, tax-wise, to parnerships under my very simplified example. They are also at a disadvantage to foriegn corporations that don't have high corporate tax rates. There are direct ways for the corporation to control its profits. It can increase wages to employees. In this case say there are 100 employees, each compensated the same and all profits are paid out to employees: Tim (an employee) receives a bonus of $100,000 (1/100 * 10 Million) Additional ordinary income $100,000 Taxes: Federal (%35) -$35,000 State (CA %8.84) -$ 8,840 --------------------------------------------- Net: $56,160 These taxes are paid by each of the 100 employees receiving bonuses. Another way that a corporation can lower its profits is by lowering the price of good sold, which benefits consumers. Owners of the corporation like Tina above want to make something from the ownership of the company and through the board of directors (voted in by Tina and the others) they expect the company to eventually issue dividends (even if it is too far in the future to benifit Tina the building retained earnings will drive up the value of Tina's shares because of the anticipation of future dividends). This keeps corporations aiming for profits; their owners insist on it. Eventually Tina will have to pay taxes on the capital gains from the increased value of her shares or to pay taxes on dividend issued by the corporation. Note that parnerships don't pay corporate taxes, instead the owners pay income taxes on the profits. Corporate taxes introduce another layer of taxes and complicate the tax system. Why not have zero corporate tax? Firms structured as parnerships don't pay corporate taxes and the income will still be taxed by the time it gets to Tom or Tina. No indivdual gets away without paying taxes on money he or she receives no matter what the corporate tax rate is. This is why other countries can have lower corporate tax rate that the US. Of what benefit are corporate taxes. Like VATs, corporate taxes affect the entire population. The impacts are diffuse and a bit opaque so the voters being affected by it are unaware of it, so it is a less painful way for governments to raise more revenue from us. Corporate taxes raise the cost of capital to corporations, which has a negative impact on the growth of the overall economy. Further, it incentivises companies to actively lobby for special breaks and perks. Politicians of all stripes like this system because corporations are big donors that keep the croney capitalism going. The real question is who bears the corporate tax and is this the most efficient and fair way to collect taxes [1]. In my own opinion, I don't think it is a good idea. Why not simply raise taxes on dividend income to ordinary rates and eliminate the corporate tax entirely. This would eliminate the competition for loopholes that distort the whole economy and hurt us all. [1] Who Bears the Corporate Tax? A Review of What We Know, http://www.nber.org/chapters/c0065.pdf http://www.nber.org/chapters/c0065.pdf