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Will Burger King shareholders benefit from the Tim Hortons merger?

Amit Jhaveri

Burger King and Tim Hortons investors react to acquisition news (Part 6 of 6)

(Continued from Part 5)

What’s in it for Burger King shareholders?

Burger King (BKW) shareholders will receive 0.99 of a share of the new company and “0.01 of a unit of a newly formed Ontario limited partnership, which will be controlled by the new parent company,” according to the company. Burger King shareholders, however, will also have an option to elect to receive the partnership units instead of the shares of the new parent company.

Danial Schwartz, the current CEO of Burger King, will become the CEO of the new company. Marc Caira, the current president and CEO of Tim Hortons (THI), will be appointed as vice-chairman and a director.

The new company is expected to be listed on both the Toronto Stock Exchange and the New York Stock Exchange.

Credit rating

On August 27, credit rating agency Moody’s placed Burger King on review for a downgrade. According to Moody’s, this move was prompted by the announcement of the deal.

As we saw in the earlier parts of this series, this acquisition will be funded with a USD $9.5 billion debt package. So this increase in debt would put the debt-to-EBITDA (earnings before interests, tax, depreciation, and amortization) to 6.4 times from the current 3.4 times, according to Moody’s.

An increase in debt significantly increases the risk to an equity investor, since the first right to the company’s cash flows belongs to the debt holders.

You can can diversify these risks by investing in ETFs like the Consumer Discretionary Select Sector SPDR Fund (XLY), which includes McDonald’s (MCD) and Yum! Brands, and the PowerSharesDynamic Food & Beverage ETF (PBJ).

Further reading

At Market Realist, we cover earnings overviews and company overviews of restaurant chains. We’ll shortly release recent quarter earnings overviews for Burger King and Tim Hortons.

To read overviews of restaurant chains like McDonald’s, Yum! Brands, and Chipotle Mexican Grill, please click on this  link .

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