Burger King could be moving to Canada — sort of.
Analysts say it's a direct challenge to the White House.
FILE - In a Saturday, Dec. 22, 2012 file photo, a customer purchases a meal at a Burger King restaurant in Marseille-Provence airport, in Marignane, France. Burger King is in talks to buy Tim Hortons in hopes of creating a new, publicly traded company with its headquarters in Canada. (AP Photo/Claude Paris, File)
In a proposed deal, detailed by the Wall Street Journal Sunday night, the iconic American brand Burger King could buy the Canadian coffee chain Tim Horton's.
The deal is important for two big reasons.
First, it would create the third-largest quick-service restaurant provider in the world, as the Journal noted:
A person familiar with the matter said a deal between the two companies could be struck soon, though additional details on timing couldn't be learned. Tim Hortons has a market value of about $8.4 billion, while Burger King's is about $9.6 billion, so together the restaurant companies are currently worth about $18 billion.
Second, the deal would enable Burger King to dodge U.S. taxes through a so-called "tax inversion," keeping cash — and its base of operations — in the Great White North.
Canada's federal corporate tax rate is 15 percent — quite a bit lower than the U.S. rate of 35 percent.
As many outlets have noted, tax inversion deals have been taking off this year, so much so that earlier this month President Barack Obama's administration said the president was considering issuing an executive order to put the brakes on fleeing American corporations.
A high-profile deal like Burger King's move to Canada could call the bluff of the White House and the Treasury Department.
As Greg Valliere of Potomac Research told Business Insider:
So much for the theory that Treasury could chill future inversion deals by hinting of possible action. The Burger King deal throws down the gauntlet, and Treasury almost certainly will have to respond by proposing curbs on interest payment deductions. We still don't expect regulations to be finalized until early next year, after a deliberative comment period, but we think there's a good chance that Treasury will get a phone call today from the White House, urging quicker action.
Image via Google Finance
As news of the deal spread, Burger King stock spiked around 15 percent in pre-market trading.
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UPDATE: White House Press Secretary Josh Earnest would not mention Burger King by name, but did indirectly address the deal on Monday, as TheBlaze's Fred Lucas reported.
“I have read reports that this is a specific financial transaction that is being contemplated by a specific American company," Earnest said. "I'm not in a position to comment on those specific transactions."
Earnest said the Treasury Department is "considering a range of administrative options" to dissuade American companies from pursuing tax inversions, and then he relayed a message from Obama: Corporations that leave the U.S. to dodge taxes are acting unfairly.
“The president doesn't believe that a company simply switching their citizenship to avoid paying their fair share in U.S. taxes is good policy," Earnest said. "It certainly isn't fair to the millions of middle class families in this country that don't have that option. The reason it's not fair – again – not speaking about any transaction [in particular] – the reason it's not fair that companies that would consider an inversion continue to benefit from all of the resources of the United States, the United States government and other assets that are funded by taxpayer dollars. So companies that are based in the U.S. continue to benefit from the infrastructure that we have in this country.”
Burger King stock climbed in Monday trading, rising 20 percent by mid-afternoon.
Image via Google Finance
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