This week, one of America’s most popular fast food chains, Burger King (BKW), completed its acquisition of Tim Hortons (THI), an iconic Canadian restaurant establishment. The result is the creation of the third largest quick service restaurant company in the world. The newly-merged firm will achieve estimated sales of roughly $23 billion, across 18,000 worldwide restaurants, located in 100 countries.
The main driving force behind the acquisition is Canada’s relatively low corporate tax rate. Since Tim Horton’s is headquartered in Canada, moving Burger King above the northern border will allow the conglomerate to abide by Canadian tax laws, instead of America's archaic and inefficient tax system. Thus, because of Canada's lower tax rate, Burger King will inevitably have extra cash to reinvest in the company or use to increase shareholder dividends.
Herein lies the problem; many Americans disagree with Burger King’s decision to purchase Tim Hortons, strictly for financial reasons. Since Burger King's highest sales occur domestically, critics demand it repatriates (or returns) the company's profits to America (for taxation). However, given America's disproportionately high corporate tax rates, doing so compromises the company's share price and undermines shareholder interests. Therefore, to protect stakeholders, Burger King's cash will now flow through Canada.
Not surprisingly, the Tim Horton acquisition has been criticized by the Obama administration, and by many others, all of whom claim such actions are irresponsible and unpatriotic. Burger King's PR team responded by stating that the acquisition is focused on “global growth for both brands." For example, Burger King will now be able to pursue breakfast options in Canada, while Tim Hortons provides higher quality supply chain goods.
By combining, ultimately these two food giants will save boatloads of money and increase monopolistic competition; the act also continues the recent trend of corporate inversion (i.e. international business consolidation to avoid high taxes), further symbolizing America's antiquated tax system.