Tim Hortons shareholders (TSX: THI) have made a killing – the stock is up about 50% from its average level over the past year. It closed at $88/share, up from about the $60 level it has been at.
I’ve written about the company last year about how they were leveraging (issuing cheap debt to buy equity) and how they appeared to be roughly at the top of their price range which seemed to make an equity repurchase imprudent. I have to commend Tim Horton’s management for engineering what can only be described as a very high liquidation value for their shareholders.
Suffice to say, if I was holding any THI at this moment I would not wait too long before hitting the “sell” button.
On paper, the synergy makes sense – Burger King commands the USA, while Tim Horton’s takes Canada.
However, history would suggest that the synergies are likely not to be realized in the form promised by this merger. THI already has tried the “Burgers and Doughnuts” concept with their failed integration with Wendy’s (NYSE: WEN) so I am actually quite skeptical of their combined ability to find operating synergies on the basis of scale. There is likely some sort of implied belief that Tim Horton’s can try to make some sort of breakthrough in the USA, but they have tried that before, and for whatever cultural reasons, it is not happening.
Maybe if Burger King went into the coffee, doughnut and breakfast market they could be assisted by offering THI products, but Burger King is paying a very pretty premium for Tim Hortons.