BK/Tim Horton's Stock Price

This might not be off-topic enough to be in the “Water Cooler” but it’s not really in the curriculum (as far as I know) so I’m posting it here.

What is the economic rationale for two company’s stock prices to soar when they are rumoured to merge? BK and Tim Hortons are both up 20% today. I can understand the rise in price if there are rumours for one side to be bought out at a premium, but how is it possible that BK and Tim Hortons are both a whopping 20% more valuable today because they’re talking about merging?

A 20% rise in stock prices indicates that the investing public think this will be a massively profitable endeavour for both sides. If that’s the case, shouldn’t this have been done a long time ago? It seems like every merger results in an inflation of both sides’ stocks. Yet if mergers are such a good idea that they often increase the value of both companies by 20%, why are they not happening considerably more often?

I don’t see how the market justifies the creation of this much market cap based on a merger. Anybody want to enlighten me?

The curriculum devotes two paragraphs to taxes, the real world does not.

I understand that BK can lower their corporate taxes, but moving their headquarters to Canada would have been an option prior to the merger. Why would they wait so long to do something that the market obviously thinks is a no-brainer? If moving the headquarters to Canada was enough to spike the stock price, shouldn’t we be seeing far more American companies doing it?

You’re seeing lots of American companies move, just not necessarily to Canada. This move could be massive for BK depending on how much profits are earned overseas, as they all just became vastly less taxed. I have no idea how much of BK is in foreign markets.

Ok well I guess that leads me to ask, if the tax implications really can raise the value of BK by 20%, doesn’t that mean this should have been done much sooner?

If it was no secret to the investing public that such a move would be incredibly lucrative, how would BK’s management not have seen this earlier? Canada’s tax rates have been low for many many years.

To my knowledge, BK recently went through a huge reorganization where they sold off many/all of the company owned stores and essentially franchised them. So now basically all of their income will be royalty fees from the franchisees. Maybe Canada sourced royalties are a relatively low split so moving there will have a good impact? I’m not sure. All I know is I wish I still owned my position in THI. I traded it a bit a couple years ago.

There is a huge legal and tax risk of doing this. Obama may declare this illegal (as he does lots of things without authority) and slam BK with a $1B penalty. Management was probably weighing risks and rewards for some time and may see today as the day to do this before the door closes with IRS changes (which will certainly be coming at some point). The funny thing is, instead of working to address their lagging competitiveness on tax issues, US politicians have declared such companies unpatriotic. Its funny how free market capitalism is slammed by Americans when it doesn’t roll their way.

one of my fav articles this year


some of you guys must not follow finance news much. the tax inversion craze is already in the later innings by now.


^ to the above, the all or nothing view of both the democrats and republicans really stifles the government’s ability to do anything useful. As much as I sometimes question the disfunction of Canadian politics with their multiple parties, the fragmented nature forces parties to work together and find common ground.

Nah, its not cooperation, its a parliamentary system that allows any majority government to stream roll everyone for 5 years with no consequence.

^ as evidenced by Harper’s annual elections until he got a majority and then settled in for 4/5? years.

I don’t mind majority governments stream rolling as long as they get a strong mandate from the population.

Stephen Harper gets to rule like a king with 37% of the vote due to the left being divided. The same happened 15 years ago when Jean Chretien got majority governments with less than 40% of the vote due to the right being divided.

As someone who is long Tim Hortons I don’t care what the economic rationale is. smiley

1 is tax. read this article. http://www.businessinsider.com/canada-corporate-tax-rate-2014-8

2 is sharing costs. they plan to merge and cut corporate costs.


A lot of US corporations already move operations overseas. However, most of them are just not as blatant as relocating the whole company. Instead, they own foreign subsidiaries or somehow avoid repatriating their cash (cough, AAPL).

There have only been one majority mandate in terms of popular vote in the last 50 years, Mulroney in 1984 (before the right split into the BQ and CA). Even before that, it was rare. The pricing is out now for the THI deal. Good payday for those shareholders. It actually looks like a good deal for all. Interesting to see Mr. “Rich should pay more tax” Buffett bankrolling an inversion deal.

Isn’t it funny how a company can be anthropormoprhic enough to be “unpatriotic”, but not enough to have free speech rights (even though speech is an important component of patriotism)?

^ Considering a company cannot speak, I’m not sure I follow.