TIM HORTONS INC. $88 - Toronto symbol THI

TIM HORTONS INC. $88 (Toronto symbol THI; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 132.8 million; Market cap: $11.7 billion; Price-to-sales ratio: 3.5; Dividend yield: 1.5%; TSINetwork Rating: Average; www.timhortons.com) has accepted a friendly takeover offer from Miami-based Burger King Worldwide (New York symbol BKW).

Under the deal, Tim Hortons shareholders can opt to receive $88.50 a share in cash or 3.0879 Burger King shares (currently worth $106.05). Burger King will limit the overall cash payout, so most investors will likely receive $65.50 in cash plus 0.8025 of a share, for a total value of $93.06.

Investors who hold shares outside RRSPs and other registered accounts will be liable for capital gains taxes.

Burger King is taking on a lot of debt to pay for this purchase. As a result, it will likely cut its own dividend, which yields 1.0%, to conserve cash for debt
repayment.

As well, the U.S. government may change its laws to keep companies from cutting their tax bills by moving to Canada, where the combined firm will
be based.

We feel most investors should select the all-cash option, even though they’ll probably receive some Burger King shares. We haven’t recommended Burger King, but we see it as a hold.

If you need to extract funds from your portfolio, you could sell some of your Tim Hortons stock. Otherwise, hold.

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