The Burger King Worldwide Inc.-Tim Hortons Inc. tie-up has already drawn heat for its implications for the United States as a tax inversion strategy, but there’s plenty to like about the deal – especially if you’re a Tims shareholder.
Tims wasn’t cheap before, trading at around 17 times price to earnings, which J.P. Morgan analysts, in a Aug. 7 report, said was “slightly above the longer-term 16-17x we believe is appropriate” for a quick-service restaurant chain. That didn’t stop Burger King and its owners, Brazilian private equity firm 3G Capital, from paying a significant premium above the recent share price. The announcement characterized the premium for the cash and shares combination offer ($65.50 cash, 0.8025 shares in the new company, per THI share) as 39 per cent above Tims’ 30-day volume-weighted average price on Aug. 22. (They can also take either $88.50 in cash, or 3.0879 common shares of the new company, pro rata.) 3G apparently isn’t afraid to pay rich prices for their targets – in 2010, they bought Burger King itself for a nearly 46-per-cent premium.