Like the rest of the country, I was blindsided when Burger King Worldwide Inc. (NYSE: BKW) and Tim Hortons Inc. (TSX: THI)(NYSE: THI) announced they were talking about combining.
And I’ll admit it: Nationalistic pride partially played a role in my thinking.
I could understand the transaction from Burger King’s perspective. It was acquiring one of the best fast-food chains in the world, at least in my opinion. Tim Hortons is practically a religion in Canada. It sells approximately 80% of the nation’s coffee. Mention the word Timbit anywhere in the country, and people will know what you’re talking about. With the exception of hockey and the maple leaf, Tim Hortons is about as Canadian as you can get. I can certainly understand the desire in wanting to own that.
No, my anger was directed at Tim Hortons. It wasn’t just that management was agreeing to be bought out by an American company — again — but that it picked Burger King as its partner. Private equity has played a huge role in Burger King’s fortunes, from its IPO in 2002 (which allowed partners Bain Capital and Goldman Sachs to cash out), to its eventual sale to 3G, another private equity firm, in 2010. It was like Tim Hortons was a victim of financial engineering, rather than being purchased by a new, loving parent.
Whenever I’ve walked into a Canadian location of Burger King, I’ve never really been impressed. Its restaurants here are often a little run-down and poor-looking compared to McDonald’s Corporation (NYSE: MCD), which has been focusing on renovating its locations. Burger King doesn’t have a big presence in Canada either, choosing instead to focus on other markets like Asia and India.
For these reasons, I originally wrote a piece where I urged Tim Hortons shareholders not to take the Burger King deal. I viewed it as Burger King trying to hijack the Tim Hortons brand as a way to buy a higher-quality asset with other people’s money. I thought Tim Hortons would be better off on its own.
But I’ve changed my mind. In fact, I’m even willing to go as far as saying that if I had Tim Hortons shares, I’d hang on to them. I would own the combined company. There’s one simple reason: It’s still Tim Hortons.
As much as Canadians hate this deal, it’s not going to affect our daily lives. We’ll still go to Tim Hortons for a morning cup of joe and maybe a breakfast sandwich. We’ll still pick up a pack of Timbits after hockey practice. Tim Hortons will still be a part of our lives.
Here at The Motley Fool, we talk a lot about how investors should own companies with strong brands. It’s something a lot of the greatest investors talk about, too, including billionaire Warren Buffett. It’s one of the basic tenets of successful investing.
Yet we seem to have collectively forgotten that Tim Hortons will still be a strong brand, even if it’s part of a new combined company. Canadian investors can still own it, along with Burger King, which isn’t such a bad brand itself. Together, they’ll combine to be the third-largest fast-food chain in the world and open up the possibility for Tim Hortons to expand internationally. It might not be as good as Tim Hortons itself, but that’s still a pretty solid brand.
It’s not so cut and dry, whether investors should take a big gain in their Tim Hortons shares and run. Personally, I think I’d give the new company a chance. It might not be as good as Tim Hortons individually, but the combined forces of Tim Hortons and Burger King isn’t such a bad thing to own.
