The proposed $11 billion merger of Tim Hortons and Burger King could lead to Canadian head office job losses, excessive executive pay at the combined company and pressure on franchise operators to cut corners, a shareholder advocacy organization warns.
The Shareholder Association for Research and Education (SHARE) said its research into the proposed deal found “some environmental, social and governance issues that may be of concern to shareholders.”
Its report, released Thursday, comes as Tim Hortons investors prepare to vote Dec. 9 on the proposed deal at a special meeting in Oakville. SHARE’s reports are prepared for institutional investors, such as pension funds, mutual funds, foundations, faith-based organizations and asset managers across Canada.
Canada’s best-loved coffee and doughnut chain announced on Aug. 26 that it had reached an agreement to be acquired by the U.S. burger flipper. The deal would create the world’s third largest restaurant company with $23 billion in sales and 18,000 stores. The brands would continue to be operated separately.
Investors applauded the merger, saying it would help Tim Hortons achieve its long sought goal of going global. But critics feared it could end up devaluing the much loved Canadian brand.
The majority owner of the combined company after the merger will be 3G Capital Partners Ltd., a multi-billion dollar Brazilian-based private equity firm.
Based on 3G’s track record with Burger King, Heinz, Anheuser-Busch and Labatt, SHARE said it has concerns about the impact of the deal on Tim Hortons’ employees and customers.
Despite winning certain guarantees in the merger agreement, including a commitment to maintain the current franchise rent and royalty fee structure for five years after the deal closes and also a head office in Canada, Tim Hortons’ deal with Burger King raises concerns, the research firm said.
The combined company would be saddled with $10.4 billion in debt, “which could require either substantial cost cutting or increases in revenues,” the report warns.
Tim Hortons’ franchisees have expressed concerns about charges for supplies and changes in pricing under the new arrangement, the report notes.
Nothing in the agreement would prevent layoffs at Tim Hortons’ head office and distribution centres, the report said, noting there were layoffs at both Labatt and Heinz after 3G takeovers, including the closure of the Leamington ketchup plant with a loss of 740 jobs.
In an earlier report, the Canadian Centre for Policy Alternatives, a progressive think tank, estimated Tim Hortons could be forced to lay off 700 people, about 44 per cent of its head office staff, SHARE noted.
3G’s commitment to maintaining staff levels at Tim Hortons restaurants applies only to the 16 corporate owned stores, the shareholder group said.
The proposed merger also presents a larger social cost, SHARE said, noting the combined entity was designed to reduce both Tim Horton’s and Burger King’s tax burden.
The Canadian government stands to lose up to $667 million in tax revenue in the first five years after the deal closes, SHARE noted.
The combined entity will have fewer independent directors on its board, a trend that has been associated with excessive executive pay, and makes no commitment to maintaining Tim Horton’s annual report on environmental sustainability, the shareholder group also said.
Canada’s competition bureau has approved the deal, saying it’s unlikely to reduce competition among fast food restaurant chains.
The deal must still receive the approval of Industry Canada.