TORONTO, Aug 25 (Reuters) - Shares of Canadian coffee and doughnut chain Tim Hortons Inc and U.S. fast-food company Burger King jumped on Monday after news that they are in merger talks.
The companies, which are comparable in size by market value, late on Sunday confirmed they were discussing a takeover of Tim Hortons by Burger King. They said the new entity would be based in Canada, which has a lower corporate tax rate than the United States, especially for entities with large amounts of earnings from overseas.
Shares of Tim Hortons jumped more than 16 percent to $73 in trading before markets opened in New York, while Burger King, which is majority owned by investment firm 3G Capital, was up more than 14 percent at $31.
Miller Tabak analyst Stephen Anderson said he did not expect any antitrust hurdles since the chains serve different quick-service segments, but he cautioned that the proposed deal could face political backlash on both sides of the border.
In Canada, critics are likely to be unhappy that the well-known Tim Hortons brand would once again fall into foreign hands.
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The deal is expected to raise hackles in the United States, with opponents decrying Burger King's plan to domicile in Canada to reduce its tax burden.
Recent attempts by companies for tax inversion deals, which are done to avoid higher U.S. taxes and save money on foreign earnings and cash held outside the United States, have drawn the attention of President Barack Obama, who criticized a "herd mentality" by companies seeking such agreements.
Tax inversions have become popular in recent months as low interest rates are making it cheaper for companies to make acquisitions, KeyBanc analyst Christopher O'Cull wrote in a note to clients about the potential deal.
Anderson said a tie-up would benefit both sides.
"Tims would gain access to a broader array of potential franchise partners in the U.S., while Burger King would gain a company with historically strong operations," Anderson wrote in a note to clients.
He said a deal would give Burger King access to popular coffee products that it could add to its 7,400-plus restaurants across North America, along with a doughnut and coffee chain brand that is growing in the United States in its own right.
