Burger King could face public backlash over deal
Burger King's (BKW) $11 billion acquisition of Canadian restaurant chain Tim Hortons (THI) is drawing fire from politicians, pundits and consumers who a way for the U.S. fast-food giant to dodge taxes.
Since talks of a possible tie-up were announced Sunday, Burger King's Facebook page has received thousands of comments denouncing the move and pledging to boycott the company. The companies on Tuesday officially announced the merger, which would give the combined company some 18,000 restaurants in 100 countries worldwide.
"If you attempt to buy Tim Horton's for the purposes of evading US Taxes, I will NEVER step foot in another Burger King again...Don't do it," reads one post that has received 1,427 "likes" so far.
Burger King's planned purchase of Canadian coffee-and-doughnut chain Tim Hortons is a move known as an "inversion," a legal maneuver that lets a company shift profits overseas to avoid paying domestic tax rates. For tax purposes, Miami-based Burger King would now be headquartered in Canada but it would continue to be managed from Florida.
The statutory U.S. corporate tax rate in the U.S. is 35 percent, the highest in the world, although effective tax rates are much lower. Canada's nominal tax rate is about 15 percent.
Some lawmakers have been quick to denounce Burger King's move. "These companies can't claim to be American when it benefits them, but when it comes to hiring people or paying their fair share of taxes they are going to run abroad -- that's not acceptable," Vermont socialist Sen. Bernie Sanders told the Huffington Post this week.
Sen. Sherrod Brown, D-Ohio, has encourage a boycott of Burger King and also boosted two fast-food chains, White Castle and Wendy's, based in Ohio. "Burger King has always said 'Have it Your Way'; well my way is to support two Ohio companies that haven't abandoned their country or customers," Brown said in a statement on Monday.
Brown, a member of the Senate Finance Committee, earlier this year introduced a bill that would lower the U.S. corporate tax rate so that it is more globally competitive, and also proposed a global minimum tax rate.
On the MSNBC show Morning Joe, hosts Joe Scarborough and Mika Brzezinski said they would no longer eat at the company's restaurants. "You know what I'm going to do so we can afford to pay Burger King's taxes?" Scarborough asked. "I'm just not going to ever go to Burger King."
Public outrage over a perceived scheme by big U.S. corporations to pay their taxes has scuttled another major merger this year. Earlier this month, Walgreen (WAG) canceled plans to re-incorporate in low-tax Switzerland under intense pressure from politicians and protesters.
Since 1983, 76 U.S. corporations have moved their tax domiciles out of the country, with the pace picking up in recent years, the Congressional Research Service said this month. Since 2009, seven corporate tax inversions have taken place, while there are currently 11 pending or under consideration, according to congressional Democrats.
Among inversion deals announced this year are:
- Under a proposal by AbbVie (ABBV) to buy U.K.'s Shire for $55 billion deal, AbbVie would legally become British, lowering its tax rate from 22 percent to 13 percent.
- Valeant Pharmaceuticals' (VRX) $53.3 billion unsolicited bid for Canada's Allergan (AGN) would cut Valeant's tax rate from 26 percent to the high single digits.
- Medtronic (MDT) would become an Irish company if its bid to purchase Covidien (COV) goes through. The move would likely cut two to three percent off Medtronic's tax bill.
- Mylan (MYL) is offering to buy generic drugmaker Abbott Laboratories (ABT). The two companies would form a new company to be based in the Netherlands, which would cut Mylan's tax rate to less than 21 percent in the first year, with the rate later dipping to the high teens.
Americans aren't the only ones concerned about the proposed merger of Burger King and Canada's iconic Tim Hortons.
"I don't like the idea of an American company buying a Canadian company -- it's our brand," Holly Cosgrey of Toronto told Bloomberg News. "Timmy's is always trying new things, adapting, they always have good service, and you always get your coffee fast no matter how long the lineup is. Burger King may screw it up."
Despite the public outcry over the deal, Burger King shareholders seem pleased with the deal. The company's stock price shot up nearly 20 percent on Monday; it fell 3.9 percent, to $31.13, in Tuesday trade.
