Berkshire Hathaway Commits $3 Billion of Capital To Deal
Earlier today, the deal between Burger King and Tim Hortons was officially announced.
As part of the deal, Berkshire Hathaway committed $3 billion towards the purchase of preferred equity financing in the company. Berkshire Hathaway, which won't be involved in the running of the new Tim Hortons/Burger King enterprise, will reportedly receive 9% annual interest on its investment.
Warren Buffett, via Berkshire Hathaway, has done similar deals before (Goldman Sachs, Bank of America). However, Burger King/Tim Hortons is different as this is a "tax inversion", as the combined company will be setting up shop in Canada in order to pay lower corporate tax rates. "Tax inversion" deals have been under increasing scrutiny as of late, with numerous lawmakers calling for them to be outright banned. Even President Obama came out against these deals a number of weeks ago.
Warren Buffett has found himself in the hot seat thanks to his participation in the Burger King/Tim Hortons deal. After all, Buffett is the man who has advocated investing in the United States as it is the "mother lode of opportunity". In addition, Buffett has gone on record in the past as saying that the ultra-rich pay too little in tax and that corporate tax rates are not that high from a historical perspective.
Warren Buffett's critics have openly wondered - how can the "Oracle of Omaha" participate in a "tax inversion" deal that will see less tax money go into the country's coffers at a time when it desperately needs all the money that it can get?
The short response? Warren Buffett, according to Bill Smead of Smead Capital Management, is "a capitalist first and a patriot second."
If Warren Buffett can sniff out a good deal for his shareholders at Berkshire Hathaway, he will pull the trigger regardless of the potential ramifications for him in the media. Remember, Buffett was seen as a vulture when he invested Berkshire Hathaway's capital into companies like Goldman Sachs and Bank of America during the darkest days of the "Great Recession".
Berkshire Hathaway is surely going to recognize a very tidy return on its Burger King/Tim Hortons investment (after all, Buffett gets access to deals that you and I would never get thanks to his sterling reputation) and that is all that is on the mind of the "Oracle of Omaha". Buffett can handle the arrows being fired his way as long as he can generate a strong return for his shareholders.
Filed under: General Market News