Ah, A Tim Horton’s double-double. This north of the border slang refers to a steamy coffee with double cream, double sugar, and to top it off, a beautifully glazed maple donut. This is a staple snack of the gray, cold, Canadian morning. What could make it better, you ask? A multi-billion dollar Canadian-American merger of course! This is huge news, as it has enormous implications for both entities, as well as the mega-company that they will become. According to Forbes, Tim Hortons has 4,546 restaurants across Canada and the U. S. , and has had a 9% increase in revenues from Q2 2013 to Q2 2014.
However, Burger King hasn’t been as lucky. They suffered a 6% reduction in revenue during the same year-long span, and a stock price of $26 before the merger. It’s fairly obvious that Burger King is hoping that this merger will turn their current financial situation around. By merging with a company that is trending up, they hope that they can be pushed with the powerhouse of a company that is Tim Hortons. This merger makes Burger King-Tim Hortons the third biggest quick service restaurant company in the world, and puts them not only on the New York Stock Exchange, but also on the Toronto Stock Exchange.
Besides expanding business and increasing sales, there is another huge benefit (at least on Burger King’s end). Forbes points out that by merging with Tim Horton’s and having their new headquarters in Toronto, they are getting a huge tax break due to Canada’s lower corporate tax rate. This was definitely a calculated, strategic move on Burger King’s part. Another benefit that Burger King is reaping from this deal is more places to source their food from, which definitely cuts cost. This merger also allows Burger King to get a foothold in the super competitive breakfast food market.
Tim Hortons has such a grip and dominance over the Canadian breakfast market, that they can help ease Burger King into the market, as well as give Burger King new menu options for breakfast. Finally, Tim Hortons can give Burger King better quality coffee, as opposed to the primordial sludge that Burger King was trying to pass off as “coffee” before. This merger also seems to fit like a puzzle piece from a numbers standpoint. According to Forbes, Burger King has over 7,000 restaurants in the U. S. and only 281 in Canada. Meanwhile, Tim Hortons is the reciprocal of that ratio.
They have 3,588 locations in Canada, and only 859 in the U. S. This seems like a perfect opportunity for these to powerhouses to merge and have a North American takeover. This also will support Burger King’s push to expand their brand internationally. Forbes also states that the new merge will add up to $23 billion in sales. All in all, this looks like a pretty solid deal for both parties. Like I just said, this has all the makings to be a blockbuster deal for both parties, but this article was published on August 29th of 2014, which is 3 days after the merger was made official, on the 26th.
It’s been a little over a year since then, so let’s see how this gargantuan deal has fared since then. Huffington Post Canada surely thinks that this deal means doom for not only Tim Hortons, but Canada as a whole. Huffington Post says that the merger would mean a 700 employee lay off for Tim Hortons, in order to cut costs in preparation for the big deal. The article also brings up the point that Tim Hortons has tried to make some headroom in the U. S. , but hasn’t been as successful as they would have liked.
There is some concern that if this merger doesn’t make Tim Horton’s have more of a presence in the U. S. , that Tim Horton’s Canada will be usurped of funds in an effort to ramp up their U. S. presence, (which has not been successful). Another concern is that Tim Hortons will pawn off their distribution and manufacturing to another entity in order to reduce overhead. This move would result in Tim Hortons losing control of their quality control of their coffee bean manufacturing, which could result in worse coffee, and less sales. Huffington Post’s last worry is that with Burger King’s headquarter moving to Toronto, the Canadian government will lose out on $355 to $667 million in tax revenues.
This is certainly While Forbes gave numbers that backed the deal as a definitive good idea, and Huffington Post Canada hated the move, CBC (which is another Canadian news outlet) had a somewhat mixed interpretation. CBC reports that after Q4 of 2014, Tim Horton’s owner lost $514 million. This is just 4 months after the merger. However, mergers aren’t quick and simple. There are a lot of moving parts and a lot of changes and restructuring, both on the back end and the front end. These changes and restructures cost a lot of money, and going in the red after a major change is common, and almost expected.
CBC reports that the total loss attributed to restructuring amounted to $94. 3 million, while $143 was attributed to derivatives. However, there is a positive note hiding in this bombshell of a loss. While there was an overall loss as stated above, CBC reports that overall revenue was $416, which is a huge increase from last years’ $265 million. CBC also reports that sales grew for both Burger King, and Tim Hortons have grown from Q4 2013 to Q4 2014. These are both very sizeable increases, with 4. 1% for Tim Hortons, and 3% for Burger King. Hopefully, this is a sign for things to come for this fledgling partnership.
As of July 27, 2015, Reuters has some good news to report. It’s shares rose 7. 5 percent in Q2, due to improved sales, adding value to the company. Due to recent customer demand, Reuters reports that chicken fries, mozzarella bacon burgers, and pulled pork sandwiches were installed back into Burger Kings normal menu. These new menu offerings increased Burger King’s sales dramatically by 6. 7 percent, which is the largest growth in sales that they have had in 10 years. Tim Hortons has also adjusted their menu in order to be more competitive in the lunch-time market by adding paninis, salads, and grilled chicken sandwiches.
New drinks such as the “creamy chocolate chill” beverage also drove sales up by 5. 5%. Reuters also notes that 52 new Tim Hortons and 141 Burger Kings have opened in the second quarter alone, and ending with a profit, as opposed to a loss in the first quarter of 2015. Even with all of this information, it’s still way too early to judge whether or not this merger was a stud or a dud. The marriage of these two companies gets them one step closer to accomplishing their goals of becoming more global brands. This partnership satisfies both offensive and defensive goals for both brands.
Offensive goals for both are hopefully realized with increased long term growth and profit, increased sales revenue, as well as more efficient use of economies of scale, with higher production due to more locations and higher consumption. Finally, they hope this merger helps them make the push on McDonald’s, as well as diversify their product offerings by muscling Burger King into the breakfast market, as well as Tim Horton’s into the breakfast market. This move also satisfies some defensive goals, by competing with foreign competitors on their own turf.
A good example of this is Tim Hortons building more locations in the U. S. in order to compete with McDonalds. Burger King also has saved millions in taxes by moving their headquarters to Toronto, which is a defensive goal of reducing operating cost, as well as expanding where they can source their food materials from. This move also preempts competitor moves (like McDonalds) and prevents both Burger King and Tim Hortons from being edged out of future markets. The longer either of them wait, the harder it will be for them to get a foothold in either country/market.
This seems like a safe move as well, because Canada and the U. S. are both low on the CRA scale, as both of them are not volatile environments, where civil, political, or major economical unrest will affect their business. The U. S. and Canada also have very similar cultures, so there won’t be any drastic specialization of product or service. This Federal Direct Investment by Burger King gives them a comparative advantage due to its lower tax rate. Overall, I this will be a somewhat successful endeavor for both sides.
The most recent quarter’s numbers are certainly promising, and hopefully they can build from those numbers. On paper, this seems like a yin and yang type of partnership, as both sides have something that the other wants. Both of them want to expand their product offering, with Burger King wanting to edge into the breakfast market, and Tim Hortons wanting to edge into the lunch market. This idea extends into geographical representation as well, with Burger King having restaurants all over the U. S. , and Tim Hortons having locations all over Canada.
This seems good, but I would have done a few things differently. First, I would have spent more money on advertising the merger, so more of the public knows about it, and for them to get excited about it. The fact that it just kind of happened, and people didn’t know about it, putting a negative or shady connotation to the move. If they had advertised it more, showing the different and new products that this merger would berth, as well as a guarantee of sustained quality, then people would get more excited about it and support it more. I witnessed this apprehension personally as well.
My girlfriend is from Canada, and all of her friends and family voiced concerns about their beloved Tim Hortons becoming too commercialized or generic due to the merger. Tim Hortons is a distinctively Canadian restaurant, and a merger with an obtusely American brand, (like Burger King) seemed not genuine and an obvious cash-grab. This is due to the deal not being as public as it could have been. However, despite the lack of transparency, this deal seems like it was a good idea, and I guess we will see how it fully pans out in the upcoming years.
