The latest US company playing the tax inversion game (which is apparently what all the cool corporate kids are trying to do by merging with a non-US company and then moving the corporate HQ overseas to avoid US taxes) is, of all companies, Burger King. The Home of the Whopper is apparently trying to join the Home of the Timbit, Canadian coffee and donut chain Tim Horton's.
Burger King (BKW.N) is in talks to acquire Canadian coffee and doughnut chain Tim Hortons Inc (THI.TO) in a deal that would create a fast food powerhouse with a market capitalization of roughly $18 billion.
Burger King and Tim Hortons, comparable in size by market value, confirmed their merger discussions late on Sunday, saying the new company would be the world's third-largest quick service restaurant. It would be based in Canada, which has lower overall corporate taxes than the United States, especially for entities that have large amounts of earnings from overseas.
The proposed deal would be structured as a so-called tax inversion transaction to move Burger King's domicile out of the United States, and could come as soon as in the next few days, according to sources familiar with the discussions.
Recent attempts by companies for tax inversion deals, which are done to avoid higher U.S. taxes and save money on foreign earnings and cash held outside the United States, have drawn the attention of President Barack Obama, who criticized a "herd mentality" by companies seeking such deals.
Tax inversions have become popular in recent months as low interest rates are making it cheaper for companies to make acquisitions, KeyBanc analyst Christopher O'Cull wrote in a note to clients about the potential deal.
Tim Hortons, on a forward earnings basis, is trading at a discount to Burger King, noted O'Cull. This factor likely makes an acquisition of the only slightly less valued Canadian chain more viable.
So what kind of fallout will this deal entail? President Obama has said, and rightfully so, that tax inversion plays like his hurt American workers and the tax base. But Burger King joining Tim Horton's and moving to Canada isn't exactly an "offshore tax haven scheme" either. On the other hand, it would be by far the most visible tax inversion move to date, ever since the one for Walgreen's was scotched last month.
On the gripping hand, Burger King would finally get some good coffee and donuts, and Timmy Hoho's would get some good burgers in the deal. Chicken Fries with poutine, anyone?
Still, corporate tax avoidance is corporate tax avoidance. We'll see what the Obama administration's response is.