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Burger King Inversion Deal With THI is the Whole Whopper, Says Investors

Anirvan Ghosh

Inversion deals are the flavor this year. This time its Burger King, which is in talks to buy Canadian chain Tim Hortons Inc. and move its headquarters to Canada, which has a significantly lower corporate tax rate than the U.S.

The inversion trend has drawn criticism from President Barack Obama and Treasury Secretary Jack Lew, who said the government might take steps to discourage the practice.

That hasn’t happened yet and shareholders are happy for lower taxes and higher profits. Tim Hortons stock rose 20.45% and Burger King soared 16.23% in early trading today. Investors think this deal might act like a trigger for more.

Perhaps the happiest of shareholders is Bill Ackman, who runs Pershing Square Capital and made over $144 million this morning with his 10.9% stake in Burger King. If executed, 3G Capital, which owns 70% of the company, will continue to be the majority shareholder in the new merged entity.

The two chains will operate as standalone brands, the companies said in a statement. Some investors were skeptical about the potential of the deal, given the trend for healthier foods in both countries.

The merger would create the world’s third-largest food chain. Tim Hortons is Canada’s biggest seller of coffee and doughnuts and has more stores per person there than McDonald’s does in the United States. It has struggled to replicate similar success in the U.S. and Burger King might help it expand and be more profitable while gaining access to a better breakfast menu to compete with McDonalds and Yum! brands.

Obama’s criticism came after at least five big companies, including AbbVie Inc and Medtronic Inc announced ‘inversion’ deals that meant moving headquarters outside the U.S. while most of their employees and management still remained here. That allows them to save taxes.

However, some investors said there might be more to the inversion deal than saving taxes. One reason might be to make the deal more acceptable to Canadian regulators by allowing the new company to remain in Canada. As for taxes, Burger King already pays about 27%, and won’t make a huge saving on that.

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