Burger King Worldwide Inc.'s pursuit of rival Tim Hortons Inc. started with a call to financier Warren Buffett and ended about six months later with a $12.5-billion takeover bid with the billionaire's backing.
The deal announced on Aug. 26 was the culmination of months of intensive talks between company officials over the phone and in meetings in Toronto and New York, according to a takeover circular filed with regulators on Tuesday.
During those talks, Tim Hortons pushed up the acquisition price three times, by 21 per cent in total, to $88.50 a share, and demanded protections for its Canadian operation. The negotiations generated commitments that Tim Hortons stay in Canada with a "meaningful" number of Canadian-based executives, and that the merged entity continue to help finance franchisees' renovations and refrain from raising franchisees' rents and royalties for five years.
The drawn-out process underlines the hesitancy among Tim Hortons' executives, and the company's board of directors, to sell what many consider a Canadian icon to a U.S. owner known for slashing costs and jobs.
Tim Hortons concluded the takeover could help speed up its international growth plans and provide savings by sharing best practices and "enhancing global shared services to improve efficiency," the documents say. Even so, when the deal was announced, executives at the chains insisted that growth – not savings – was the key reason for the takeover.
As early as the second half of 2013, Burger King decided to explore a possible acquisition of Tim Hortons, the filing says. By early March, 2014, Alexandre Behring, managing partner of of 3G Capital, which controls Burger King, spoke with Mr. Buffett, who heads Berkshire Hathaway Inc. and with whom they had teamed the previous year to buy ketchup maker H. J. Heinz Co. Mr. Buffett said he would support a deal.
Armed with that knowledge, a banker for Burger King called Tim Hortons' chief executive officer, Marc Caira on March 12 to talk about 3G wanting to put together Tim Hortons and Burger King. Mr. Caira agreed to have dinner with Burger King's Mr. Behring. That kicked off months of negotiations that saw Burger King raise the takeover price from $73 a share to $88.50 and commit to Tim Hortons demands for protections.
Mr. Caira and Mr. Behring met for dinner in Toronto on March 20 but no terms were discussed. However, Mr. Caira signalled that Burger King should make an offer.
"Mr. Caira informed Mr. Behring that Tim Hortons was not for sale, but that he would inform the Tim Hortons board of directors of Burger King Worldwide's and 3G Capital's interest and indicated that any specific proposal should be communicated in writing," the documents say.
That resulted in an opening bid of $73 a share, delivered to Tim Hortons on March 24 in the form of a joint letter from 3G, Burger King and Berkshire Hathaway.
By May, the bidders were offering $78 a share. But Tim Hortons countered it wasn't enough and that its strategic plan would drive the stock even higher. A few weeks later, on June 27, Burger King raised its bid again to $82.50. Still, Mr. Caira said that Tims was not yet ready to accept.
In August, Mr. Caira told Burger King it "would have to improve the price and terms of its proposal and clarify or provide additional detail about the commitments it was prepared to make in respect of other stakeholders, including those it was prepared to make to demonstrate its commitment to the franchisees, employees, guests, communities and Canada, as previously had been discussed in more general terms in its proposal."
On Aug. 15, with the price bumped again to $88.50 and more commitments from the bidders, Tim Hortons agreed to go ahead with discussions on a deal.
Throughout the talks, Tim Hortons demanded protections. In August, for example, Mr. Caira said Tim Hortons wanted Burger King to enshrine in promises to the Canadian government that it would not raise rent or royalties for franchisees for five years; would keep the combined company's stock listed in Toronto and keep the Tim Hortons headquarters in Canada. Tim Hortons also wanted store branding to be independent.
"The Tim Hortons board of directors wanted Burger King Worldwide to support, by way of undertakings in connection with Burger King Worldwide's application under the Investment Canada Act, Tim Hortons core principles," the companies said in the filing.
Burger King's representatives did not balk. They "agreed to consider these matters further, but they acknowledged that Burger King Worldwide expected to be able to approve most of these requests and, in fact, recognized the importance of and was fully supportive of the Tim Hortons core principles." In the end, Burger King committed to make those promises and allow the government of Canada to enforce them.
Tim Hortons directors approved the final terms of a deal on a conference call on Aug. 25. Mr. Caira told the board that the transaction's details were almost done. Lawyers for Tim Hortons looked over the terms, and the company's bankers deemed the transaction fair. The board considered the commitments that Burger King was making, and the fact that Burger King would pay Tim Hortons a $500-million reverse break fee if the deal could not get the required approvals.
"Following further discussion among the board of directors, the Tim Hortons board of directors unanimously determined that the arrangement was in the best interests of Tim Hortons and authorized Tim Hortons management to finalize and execute the arrangement agreement."
And with that, Tim Hortons was on the way to being sold.