Ahh Burger King, truly an All-American fast food company. Well, they may not be for much longer. On Monday August 25th, 2014 Burger King Worldwide (BKW) announced that they would be trying to buy Tim Horton’s Inc (THI) and move the company to Canada.
This is another example of a tax inversion, which has become increasingly popular strategy as of late. In essence, BKW would buy THI to enjoy the lower Canadian corporate tax rate of 15% (in comparison to 35% in USA). Plus, being a multinational corporation would let BKW to selectively decide which country they would like to book profits and deductibles, which means they can minimize the taxes on earnings and maximize the amount deducted from taxes owed.
So is it illegal? It is frowned upon by the US government, but tax inversions are technically legal. In fact, that’s why it has become popular as of late. When working on a global scale, shaving 7-10% in taxes on revenue in the multiple of billions can add a pretty nice chunk of change to your bottom line. The only real repercussion is looking like a sleazy company, especially if you’re an All-American brand like BKW.
One thing to note though is that the deal between BKW and THI is not a merger. They would still be considered separate and trade separately on the NYSE. So, the real question is which one would you rather own?
Personally I like THI more than BKW. Both stand to gain from the deal, but THI is ahead in a few respects. At the end of the day, if the deal doesn’t go through, I would much rather be left with long term shares of THI.
Check out the video below for a more detailed dividend stock analysis of BKW and THI