The proposed $12.5 billion merger of Tim Hortons and Burger King began in early March with a phone call to Warren Buffett.
Alexandre Behring, chairman of Burger King and managing partner of the burger chain’s majority owner, 3G Capital, called Buffett to see if the American billionaire would be willing to finance the transaction.
Buffett, who had previously helped 3G Capital, a Brazilian investment firm, buy H.J. Heinz Company in 2013, said yes, according to regulatory filings jointly submitted by the companies on Tuesday as part of the process of winning shareholders’ approval of the deal.
Tim Hortons board of directors was not so quick to agree. The coffee and doughnut chain had just embarked on its own multi-year strategic plan to boost sales and profits under its relatively new chief executive officer Marc Caira.
Still, Tim Hortons didn’t immediately say no, either.
Over the next six months, the Canadian company would repeatedly hold out for more money and greater assurances that benefits to Canadian franchisees, employees and other stakeholders would not be lost in the merger, the filings show.
Among the more controversial decisions the parties made was one that would see the newly combined company headquartered in Canada.
The move set off a firestorm of controversy in the U.S., where Burger King was accused of moving its head office to Canada to take advantage of Canada’s lower corporate tax rate.
Burger King has said it wouldn’t see any meaningful change to its tax rate, as it would still be subject to federal, state and local taxes in Miami, where the burger chain’s operations would continue to be based.
The practice of using mergers to shift head offices to lower tax jurisdictions has become a global worry. In a report prepared for a G20 meeting of finance ministers this week in Cairns, Australia, the Organisation for Economic Co-operation and Development has proposed a number of measures for limiting its use.
Behring first put Burger King’s offer to Caira at an informal dinner meeting between the two in Toronto on March 20.
Caira said the company was not for sale but agreed to communicate any offer to Tim Horton’s board if Burger King provided it in writing.
Burger King did so.
Tim Hortons board rejected Burger King’s initial offer, of $73 a share in cash and shares in the combined company, as too low.
Over a series of meetings, Burger King raised its offer three times, to $88.50 on Aug. 15.
But for Tim Hortons’ board the deal was not just about the money. It was also about preserving Tim Hortons’ status as a Canadian brand as iconic as the Royal Canadian Mounties.
Tim Hortons board held out for a series of commitments it said were critical to winning its approval.
That included assurances the brand would be separately managed and headquartered in Canada. Its franchisees would get a five-year freeze on rent and royalty increases.
It would be able to nominate three seats on the combined company’s board and maintain a “meaningful number” of Canadians in the combined company’s headquarters.
Tim Hortons also wanted assurances it would be able to maintain its commitments to charitable organizations.
Burger King, which early on signaled it recognized Tim Hortons “rich heritage,” said it would likely be able to agree to its demands.
The deal, which must still receive the approval of shareholders and regulators, was eventually sealed on Aug. 26 with $3 billion in financing from Buffett’s Berkshire Hathaway Inc.
The merged entity would combine the second largest burger chain in the U.S., with Canada’s largest coffee and doughnut business — though the companies say they plan to keep their brands and operations separate.
Still, the deal is seen as helping Tim Hortons compete against better known rivals in the U.S., while giving Burger King a stake in the fast growing breakfast market.
Burger King’s chief executive Daniel Swartz would chair the combined entity. Caira would become vice-chairman of the new company The company, which would be listed on both the TSE and New York stock exchange would be the world’s third largest quick serve restaurant company, with $23 billion (U.S.) in annual sales.