When it comes to taxes, Warren Buffett has managed to figure out a way to piss off those on the right and left.
America’s favorite billionaire and capitalist, Warren Buffett, is at the moment annoying the left by putting up cash for Burger King to buy Tim Hortons, the Canadian coffee and doughnut chain for $11 billion. When the deal goes through, and the companies are combined, their headquarters will stay in Toronto, instead of the home base now for Burger King which is Miami. This will help the company avoid paying an undisclosed amount in United States taxes.
A deal typically structured like this is known as an inversion, and in the past they have annoyed many people on the left and right, and this includes our current Pres. Barack Obama. Recently, he called companies that participate in these deals as “corporate deserters.” Long-time supporter and advisor of Pres. Obama, Warren Buffett, is giving a lift to one of these companies planning to move across the border, and putting himself right in the middle of a political gunfight.
“I don’t think this is a good deal for the American taxpayer,” Rep. Bill Pascrell (D-NJ) said during an interview on CNBC when the deal was announced on Tuesday.
In the not too distant past, Warren Buffett himself made an announcement and asked millionaires to pay a minimum tax. The rule became so popular that it was eventually called the Buffett Rule. We guess companies get a different rule in Buffett’s estimation.
However, there are a few points where Buffett should be defended. For starters, there are plenty of good business reasons why Buffett would want to support this merger. The fast food burger market is awful at the moment, with customers fleeing for better quality fast food from restaurants like Chipotle. In the last four or five years, Burger King has been especially vulnerable since their profits in US sales continue to fall. Sales were $9.3 billion in 2008 and they’ve dropped to $8.5 billion in 2013.
On the other hand, Tim Hortons has been growing steadily in Canada and the United States for the past four years. The company has grown from a $7 billion company in 2009 to a company worth $9 billion in 2013. Altogether, this new company would be worth $23 in global sales revenue each year, and based off of these estimates we will have the third largest fast food chain in the world. The size and the opportunity to serve doughnuts and a decent breakfast at Burger King might just provide a chance to survive the current burger wars.
Keeping all of this in mind, you might argue that this makes perfect sense for the new company to be based in Toronto instead of Miami. Ultimately because saving Burger King’s butt will ultimately happen in Canada.
At this time, it is not clear just how much tax money Burger King is going to save with this inversion deal. It may not amount to very much at all.
3G capital, the company currently running Burger King, is a private equity firm based out of Brazil. It does not care where Burger King is located, whether it be Miami, Toronto or Jupiter for that matter. Burger King is still an American brand, but it really isn’t an American company at this point. People have come to expect more from Warren Buffett – who lives in Omaha Nebraska and drinks Coca-Cola and is a sensible and reasonable guy – as opposed to some private equity firm in Brazil.
The mistake that we made is simple… Warren Buffett is a businessman first and foremost. Patriotism is secondary.
Berkshire Hathaway did not respond to any requests for comments.