Warren E. Buffett’s name is giving a public relations boost to Burger King’s deal to buy Tim Hortons. But some commentators on Twitter are calling Mr. Buffett, the head of Berkshire Hathaway, a hypocrite and branding him unpatriotic for supporting a company’s move to Canada from the United States. Both sentiments are diversions.
Mr. Buffett is lending Burger King $3 billion in the form of preferred stock at a lucrative 9 percent interest rate for it to complete the $11.4 billion deal for Tim Hortons. He is once again backing Burger King’s majority owner, 3G Capital, the Brazilian private equity group that bought Heinz last year for $28 billion with his financing help.
But Mr. Buffett’s imprint tells regular investors in Burger King and Tim Hortons nothing. There’s no vote of confidence in either company’s common stock, and no Buffett management stardust being spread, either.
He also lent money during the financial crisis to Goldman Sachs, Bank of America and General Electric among others. As banks faced deep market gloom, his investments carried the valuable message that he thought the companies would survive.
His investments in Heinz, before that in Wrigley alongside Mars, and now in the Burger King-Tim Hortons deal are just profitable uses of a few billion of Berkshire’s spare cash.
Although the new parent company of Burger King and Hortons will be based in Canada, the perceived tax inversion – a mechanism much in the news lately by which companies based in the United States change domicile to lock in lower tax rates – really isn’t one this time. The two companies have similar effective tax rates, Burger King doesn’t have mounds of cash trapped overseas, and both will operate separately under headquarters that won’t move. The company says its tax rate won’t change materially.
That means the deal doesn’t really work against what President Obama called “economic patriotism” as some on Twitter claim. Rather, it’s a highly leveraged buyout by 3G of another restaurant chain.
And the strengthening to the market value of both buyer and seller, more than $4 billion since the deal was announced, is a function of investor faith in 3G and the power of financial engineering. There’s no real endorsement from Mr. Buffett and no hypocrisy – the deal is just a leveraged buyout.
Robert Cyran is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.