Burger King operations would remain in Miami in a Tim Hortons deal
08/25/2014 11:23 AM
08/26/2014 2:19 AM
Burger King’s weekend announcement that it is in talks to buy doughnut chain Tim Hortons and create a new holding company headquartered in Canada — with potentially lower taxes — sent shivers through Miami’s civic community. But the company said Monday that its Burger King unit would still be based in Miami, where it was founded 60 years ago, and no local employees would be affected.
“Burger King Corporation will not be relocating to Canada," said Miguel Piedra, spokesman for Burger King Corp. “We will continue to operate as our own standalone business unit and our global headquarters will remain here in Miami, where we have been since 1954. Pending the closing of the transaction, the newly created parent company will be based in Canada as will Tim Hortons, which will continue to be based in Ontario.”
If consumated, the deal would create the world’s third-largest fast- food chain by merging with Canada’s biggest seller of coffee and doughnuts, the companies said in a statement. The new combined business would have about $22 billion in sales and more than 18,000 restaurants in 100 countries. The deal is subject to negotiation, and Burger King and Tim Hortons don’t plan to comment further until an agreement is reached or discussions are discontinued, according to the statement.
The joint statement said that within this new entity, Tim Hortons and Burger King “would continue to operate as standalone brands, while benefiting from shared corporate services, best practices and global scale and reach.”
Nationally, the deal is being viewed as the latest in wave of so-called “tax inversions,’’ in which U.S. companies have moved abroad to lower their tax rate. The Canadian corporate tax rate is typically 26.5 percent, compared with 40 percent in the U.S., according to auditing and tax firm KPMG. Since the start of 2012, at least 21 U.S. companies have announced or completed the deals, comprising almost half the total of 51 such transactions in the past three decades.
Burger King already pays a rate far below 40 percent, the result of operating in a mix of tax jurisdictions. Its effective tax rate in 2013 was 27.5 percent, the company said in a filing. Still, the rate may eventually creep up toward 35 percent without the inversion, according to Will Slabaugh, an analyst at Stephens Inc. in Little Rock, Arkansas.
Some Burger King customers were finding it hard to swallow that the home of the Whopper could move to Canada. By Monday afternoon, Burger King’s Facebook page had more than 1,000 mostly negative comments about the potential deal.
Locally, the deal raised concerns that have surfaced before as the marquee Miami fast-foot brand has downsized staff amid ownership changes.
In 2005, Burger King mulled a move to Texas, but state and county officials came up with an incentive package to keep the company local. Its landlord in the Blue Lagoon complex made it worthwhile to the corporation to remain in its current headquarters.
Frank Nero, head of the Beacon Council from 1996 to 2013 and now a consultant, said that under previous owners, the company was intensively engaged in the community — founder James McLamore was known for his generosity to not-for-profits from United Way to Fairchild Tropical Botanic Garden — and involved in the Beacon Council and Greater Miami Chamber of Commerce. Nero recalled a marketing intiative more than a decade ago that got its first financial support — a check for $100,000 — from Burger King. Executives with the company appeared in ads for the council, which is Miami-Dade County’s economic development partner, and spoke to other CEOs during recruitment efforts.
But since Brazilian investment firm 3G Capital bought the company and took it private in 2010, Nero and others said it has been less active in business organizations and the community. The firm took Burger King public again in 2012.
News of the planned merger renewed his concerns.
“Anything that creates a risk for a company to either downsize or relocate is something that we’ve got to be very mindful of,” Nero said. “The fact that Burger King under their new ownership has not been as engaged in the community as past owners and leadership have is something that’s been a little bit troubling.”
Said Nero, “We don’t have that many top corporate headquarters here and to lose Burger King would be a great loss for Miami-Dade County.”
Developer Armando Codina, executive chairman of Coral Gables-based Codina Partners, said it would be a “shame” to lose Burger King. “It’s not the same thing having an operation here as having the headquarters here,” he said.
But, Codina said, he expects to see more companies take similar steps if lawmakers don’t address corporate taxation issues. “Many companies are going to do what Burger King is doing until those structural problems get dealt with and we rewrite tax laws,” he said.
Tony Argiz, chair of the Greater Miami Chamber of Commerce and chairman and CEO of accounting firm Morrison, Brown, Argiz & Farra, said he and others at the chamber planned to reach out to Burger King exectives about their plans. The company is not a member of the business group, according to chamber president and CEO Barry Johnson.
“Any time you have the potential to lose a big company, especially a company like Burger King that was born here, it’s a disappointment,” said Johnson, president and CEO of the Greater Miami Chamber of Commerce. “But we are pleased that the Burger King unit, if not the parent company, will remain here.”
Without giving an exact employment number, Piedra said Burger King’s Miami headquarters employs “several hundred” and said its employees would not be affected. “If the transaction closes, there will not be any impact to our corporate or field staff,” Piedra said on Monday.
Beacon Council’s President and CEO Larry K. Williams said in a statement, “Burger King is a home-grown company that is an important part of the fabric of our community in Miami-Dade County. We are vigilant in fostering business development and investment and we are confident about Miami-Dade County’s assets.” He declined to be interviewed.
The merger talks sent shares of both companies soaring. Burger King rose 20 percent to $32.40, the biggest jump since the stock debuted on the New York Stock Exchange two years ago. Tim Hortons climbed 19 percent to U.S. $74.72, reaching a record high. The stock gains propelled the market value of Burger King past $11 billion and Tim Hortons to $9.9 billion.
The proposed deal would give Burger King access to a coffee brand with a cult following and potentially help boost breakfast sales. Burger King now sells coffees under the Seattle’s Best name, which is owned by Starbucks Corp. Tim Hortons also would let Burger King get into the grocery business by selling packaged coffees at supermarkets in North America.
3G Capital, which has a 70 percent stake in Miami-based Burger King, would own the majority of the shares of the new company, according to the statement. The two businesses will operate as stand-alone brands, though there may be supply-chain cost savings from combining them.
3G was co-founded by billionaire Jorge Paulo Lemann, Brazil’s richest person. The firm’s managers have gained a reputation by squeezing costs out of the companies it acquires, Slabaugh, the analyst, said.
“These guys are known for making some very smart financial moves.”
Miami Herald Business Editor Jane Wooldridge contributed to this report, which was supplemented by material from the Associated Press and Bloomberg News Service.
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