On Tuesday Burger King confirmed its $11 billion purchase of Tim Hortons, the Canadian coffee and donut chain, creating the world’s third-biggest fast-food company, with 18,000 restaurants in over 100 countries.
The merger has raised significant controversy. Like other major fast-food chains in the U.S., Burger King has an unsavory history of poor labor relations and many illegal employment practices, making regular news headlines for wage theft, employment discrimination, wrongful termination, violations of FMLA and ADA, and other unethical and unlawful workplace practices. The fact that the company will be moving its headquarters out of the U.S. means they will now be saving millions on taxes in the very restaurants where this worker exploitation takes place.
The American corporate tax rate is 35%, but 26.5% in Ontario where Tim Hortons is currently based. Therefore, relocating headquarters to a country where corporate taxes are lower seems like a smart financial move. But is it unethical? Is it even, as President Obama has claimed, “unpatriotic”?
Such corporate arrangements are what have come to be known as “tax inversion” deals. In an inversion, a U.S. company relocates—typically through a merger with a smaller company—to a different country with lower tax rates and perhaps other rules perceived to be friendlier to corporations. However, the firm continues to be managed from the U.S.
Such inversions have taken place off and on for years, but amidst a recent wave of company departures, the practice has come under increasing fire from politicians, economists, and labor advocates. President Obama and other Democrats are looking into ways that this can be prevented in the future. “Burger King is a household name, and this will focus the public’s attention on this issue in a way that earlier inversions did not,” said Maryland Representative Chris Van Hollen, the senior Democrat on the House Budget Committee. He speculated that the Democratic-run Senate would attempt to pass anti-inversion legislation in the coming months, and that the party would continue to push for a similar vote in the GOP-run House. Yet many commentators point out that any such action from such a polarized Congress seems unlikely at the moment.
Burger King and Tim Hortons will maintain their separate brand identities, but save costs by consolidating corporate services. Mergers are not unfamiliar to Tim Hortons, which was once owned by U.S. fast-food chain Wendy’s before branching off as an independent company in 2006.
Warren Buffet’s investment firm Berkshire Hathaway confirmed that it will contribute $3 billion to the deal in “preferred equity financing,” although it would not have any managerial control over the business.
At close of the US stock market on Monday, Burger King’s shares were up by 19.5%, and those in Tim Hortons by 19%, after the companies confirmed they were in talks.