The Successful Investor Hotline – Friday, September 26, 2014

Article Excerpt

TIM HORTONS INC., $88.38, Toronto symbol THI, still plans to merge with Miami-based Burger King Worldwide (New York symbol BKW), even though the U.S. government is now clamping down on “tax inversion” deals like this one. The combined firm will be based in Oakville, Ontario, which will let it take advantage of Canada’s 15% corporate tax rate, compared to 35% in the U.S. Under the new rules, it’s now more difficult for the foreign parent firm to shift funds between subsidiaries. As well, shareholders of the former U.S. firm must own less than 80% of the combined company. That shouldn’t be a problem for this deal, as Brazilian private-equity firm 3G Capital Management will wind up with 51% of the merged company. Other Burger King investors will hold 27%, while Tim Hortons shareholders will own the other 22%. Uncertainty over the new rules is part of the reason why Tim Hortons is trading below the default bid of $65.50 (Canadian) in cash plus 0.8025…