The news of possible merger between US fast-food chain Burger King Worldwide Inc and Canadian coffee and doughnut chain Tim Hortons Inc hit the bull run as shares of both the companies jumped high in late trade on Monday.
Shares of Tim Hortons surged nearly 20 percent at USD 75.23 on the New York Stock Exchange (NYSE). Likewise, the shares of Burger King soar more than 17 percent to USD 31.83.
The merger decision brought cheers for the market as the investors and market analysts hailed the possible deal, saying it holds several benefits for both companies.
The companies, which share similar market values in size, on Sunday confirmed that they were in talks over a possible takeover, in which Tim Hortons would be taken over by Burger King.
Insiders say the new entity would be Canada-based as the North American country offers lucrative tax policies including lower corporate tax rate, especially for entities having huge overseas earnings, than the one offered by the United States.
What analysts say?
Patricia Baker, an analyst from Scotiabank:
“The deal would be structured as a tax inversion. Moreover, it could see a more favorable treatment for foreign profits of Burger King and create the third-largest global quick-service restaurant player.
David Baskin, president of Baskin Financial Services:
“If Burger King can export itself to Canada, I understand the tax savings are in the order of 13 percent. So that’s got to be a win for the Burger King shareholders. While as a Tim Hortons shareholder, we expect at least C$85 a share equivalent, i.e. about 2.75 Burger King shares for every share of Tim Hortons.
(Baskin Financial Services controls about 180,000 shares of Tim Hortons.)
Kenric Tyghe, analyst at Raymond James:
“I expect take-out valuation range of Tim Hortons to be between C$85.00 and C$95.00 per share.
Anderson, Miller Tabak:
“Tim Hortons would gain access to a broader array of potential franchise partners in the United States, while Burger King would gain a company with historically strong operations.