The move by Burger King Worldwide, Inc. (BKW) to acquire Canada-based Tim Hortons Inc. (NYSE/THI) was a genius move and buying opportunity that surprised many in the stock market.
Just look at the reaction of the traders after the news surfaced that Burger King was indeed buying Tim Hortons; Burger King stock surged on the news, which I also believe was a very strategic move by the company and a possible buying opportunity for investors.
The initial speculation was valid as an $11.0-billion deal was announced. Tim Hortons stock closed up more than 31% after the announcement and the initial buying opportunity. For the acquisition, Warren Buffett will provide $3.0 billion in financing, so we know the move makes sense if Buffett is supporting it.
Chart courtesy of www.StockCharts.com
Here’s my thinking: Burger King, like many companies in the fast-food sector, is struggling to find growth around the world. Perennial fast-food leader McDonalds Corporation (NYSE/MCD) is no exception, as the seller of the “Big Mac” faces muted growth in the global economy.
Burger King, with its global exposure encompassing more than 12,000 franchise restaurants in North America, Europe, the Middle East, Africa, Latin America, the Caribbean, and the Asia Pacific, also needed a spark to drive its revenue and earnings growth.
The addition of Tim Hortons makes sense due to the cross-marketing opportunities and the ability to cut overlaying expenses, which makes Burger King a possible buying opportunity for investors. There are approximately 4,500 Tim Hortons with about 860 outlets in the United States.
While the two companies will be separate, the buying opportunity potential I see is the ability of Burger King to sell Tim Hortons coffee at its global outlets, as well as the ability to look at the two product lines and determine if there are any cross-selling opportunities.
With the combination, there will be many more places to buy Tim Hortons coffee in the United States, assuming that’s what Burger King wants to do. Tim Hortons has had a tough time trying to crack into the lucrative American coffee market; now, it has the ability to do so and catch up with leaders Dunkin’ Brands Group, Inc. (NASDAQ/DNKN), with its more than 11,000 stores, and Starbucks Corporation (NASDAQ/SBUX), with more than 10,000 company-owned stores.
Going forward, I feel that once the deal is done, the resulting Burger King will be a much stronger company that deserves a closer look as a potential buying opportunity.
Originally published here: