It may not seem at first that Tim Hortons Inc. and Burger King Worldwide Inc. have much in common. One is a Canadian institution, akin to hockey or the Mounties. The other is a U.S. burger chain running well behind market leader McDonald's Corp.
But the unlikely pair is in merger talks, with Oakville, Ont.-based Tim Hortons boasting that a tie-up with globally expanding Burger King would help the Canadian chain move into new markets worldwide.
Tim Hortons late Sunday disclosed it is in takeover talks with fast-food giant Burger King, a global chain controlled by private equity firm 3G Capital Management. Together the two companies would have $22-billion (U.S.) in annual sales and more than 18,000 franchised restaurants in 100 countries.
If they succeed in striking a deal, the pair would create a Canadian holding company that would operate the two brands independently, the chains said.
But the combination creates the potential, some observers say, for Tim Hortons to have a coffee-and-doughnut presence inside Burger King's restaurants in the U.S., where the doughnut chain has so far struggled to make inroads. Meanwhile, Burger King could see its fortunes improve as competition in the fast-food world – particularly from McDonald's – has focused lately on new offerings of coffee, breakfast food and healthier options.
"It isn't a slam dunk, but it has all the makings," said Ken Wong, a marketing professor at Queen's University's business school.
While the new company would be nominally headquartered in Canada, the new majority owner would be Brazilian private equity group 3G Capital, the current majority owner of Burger King, which it bought in 2010. The reminder of the shares would held by the existing shareholders of the two chains.
Shares of Tim Hortons and Burger King both jumped about 19 per cent Monday.
Tim Hortons, which was owned by U.S. burger chain Wendy's in the 1990s before being spun off in 2006, has enjoyed some good news recently. Its second-quarter results beat analysts' estimates and its same-store sales growth was its strongest since 2012. But last year, Tim Hortons came under fire from two U.S. hedge funds unhappy with the company's strategy and flat stock performance and the cost of its struggling American expansion.
Since being scooped up by 3G, Burger King has undergone a transformation, shedding its own restaurants and leaving more in the hands of franchisees as well as aggressively cutting costs. The moves, driven by a new 33-year-old chief executive officer, Daniel Schwartz, have been criticized as "financial engineering," but the slashing has also come with new expansion overseas.
The bare-bones approach – the CEO reportedly has no receptionist and nixed both the corporate jet and a lavish annual European party – has been paired with a focus on making deals to have franchisees renovate, update and improve their restaurants.
Behind the scenes in the Tim Hortons deal is hedge fund giant Bill Ackman, whose Pershing Square Capital took a nearly 11-per-cent stake worth $1.2-billion in Burger King in 2012. Mr. Ackman, who also took a stake in Wendy's in 2005, demanding that it spin off Tim Hortons, reportedly made about $200-million on Burger King's stock price increase on Monday alone.
Mr. Ackman, who declined to comment on Monday, is also no stranger to "inversion" deals, having teamed up with Laval, Que.-based Valeant Pharmaceuticals International Inc., in an effort to acquire Irvine, Calif.-based Botox maker Allergan Inc. So far, Allergan has warded off its pursuer.