It's a win-win deal. Tim Hortons needs more brand exposure through Burger King, and Burger King needs to reduce taxes and strengthen its breakfast offerings. While there may be some regulatory hurdles on the US side, there are no significant hurdles that will impact the deal.
In a press statement this morning:. As an alternative to the default mixed transaction consideration described above, each Tim Hortons shareholder will have the ability to elect to instead receive, for each Tim Hortons share held, either NYSE: There are three payment options for Tim Hortons' shareholder.
The all-share offer and the cash and share offer provide a burger cheap call option on Burger King stock, which impacts the value of options share payments.
The deal is unlikely to face significant regulatory hurdles. On the Canadian side, the combined company is moving the headquarters to Canada and it'll remain listed on the TSX. The US regulators may scrutinize the tax aspects, but congress may not get its act in time to prevent the transaction from not going through.
With stock elections around the corner, congress is unlikely to pass any tax related bills. Finally, the financing aspect of the deal is solid.
The press release had the following statement on financing:. The obligation of JPMorgan and Wells Fargo to provide this committed debt financing is subject to a number of customary conditions, including execution and delivery of certain definitive documentation. Berkshire is simply a financing stock and will not have any participation in the management and operation of the business. Because there are two share payment options, I have listed the scenarios in figure 1 below.
Arbitragers should execute the one with higher return, which is the all-share option at the moment. There are some king risks, as the Tim Hortons' deal is priced in Canadian dollars, while Burger King's shares are priced in US dollars.
Also, the transaction is being taxed as explained in the press release:. The transaction is expected to stock taxable, for U. The transaction is expected to be taxable to shareholders of Tim Hortons in the U. This deal is a win-win situation for both parties. The transaction king likely to go through and Tim Hortons' shareholders should hold on to their stock for now for a better price realization.
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Long Ideas Short Ideas Cramer's Picks IPOs Quick Picks Sectors Editor's Picks. How To View The Transaction From A Shareholder And Merger Arbitrage Perspective Aug. Tim Hortons shareholders should burger onto their shares. Implications of the Deal: In a press statement this morning: Investing IdeasLong IdeasServicesRestaurants. Want to share your opinion on this article? Disagree with this article? To report a factual error in this article, click here. Follow Kenny Yang and get email alerts.