How Burger King is financing its Tim Hortons acquisition

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Sep. 2 2014, Updated 12:19 a.m. ET

Funding the deal

The Tim Hortons (THI) acquisition’s value of about $12.5 billion is more than Burger King’s (BKW) market capitalization of $10.9 billion as of August 26. The acquisition will be funded through commitments of $12.5 billion, which are structured as follows.

Burger King will fund its acquisition with $9.5 billion in debt and $3 billion in preferred equity. The debt portion will be led by J.P. Morgan and Wells Fargo and broken down into three parts:

  1. $6.5 billion in senior secured loan B facility
  2. $0.5 billion in revolving credit facility
  3. $2.5 billion in senior secured second-lien notes

The preferred equity commitment will come from Berkshire Hathaway, which is a conglomerate company led by the iconic investor Warren Buffet.

What could hold back this acquisition?

Tim Hortons shareholders will have to approve this deal. The deal will also need approvals from Canadian and U.S. antitrust and regulatory departments.

As for Burger King’s shareholders’ approval, 3G Capital owns 70% of the company and has “committed to vote in favor of the combination,” according to the company.

If the acquisition goes through, Burger King will be third-biggest fast food chain, behind McDonald’s and Yum! Brands (YUM) in terms of market capitalization.

To invest in the restaurant industry as a whole, you may want to consider ETFs like the Consumer Discretionary Select Sector SPDR Fund (XLY) and the PowerSharesDynamic Food & Beverage ETF (PBJ), which include McDonald’s and Burger King, respectively.

Now let’s take a look at what’s in store for Tim Hortons shareholders to motivate them enough to approve this acquisition. Read on to the next part of this series.

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