Warren Buffett’s Berkshire Hathaway Inc. is providing financing for Burger King Worldwide Inc.’s planned takeover of Tim Hortons Inc., the latest deal being backed by a commitment from the billionaire.
Berkshire will invest $3 billion for preferred equity, according to a statement today from the restaurant companies that didn’t state the annual dividend on the stake. Buffett has previously injected capital into financial firms like Goldman Sachs Group Inc. and Bank of America Corp. at times of crisis, and helped fund deals such as Mars Inc.’s purchase of Wm. Wrigley Jr. Co.
The latest transaction helps Buffett deploy some of Berkshire’s mounting cash pile, which grew to a record $55.5 billion at the end of June. It also deepens his company’s relationship with Jorge Paulo Lemann’s 3G Capital, which controls Miami-based Burger King. Buffett teamed up with Lemann’s firm last year to to take HJ Heinz Co. private.
“3G does a magnificent job of running businesses,” Buffett said in May at his company’s annual meeting in Omaha.
Burger King today said it would acquire the Oakville, Ontario-based coffee-and-doughnuts chain for about C$12.5 billion ($11.4 billion) in a deal that creates the third-largest fast-food company and moves its headquarters to Canada.
Inversion Deals
President Barack Obama has criticized American companies that move to other nations in search of lower corporate tax bills. Between mid-June and late July, at least five large American companies announced plans to make such a shift — known as an inversion. That includes AbbVie Inc. and Medtronic Inc.
Buffett has supported Obama’s push to increase personal income taxes for the wealthiest individuals while striking deals that reduce Berkshire’s obligations to the government. This year, his company limited taxes on more than $1 billion of gains in Graham Holdings Co. stock by swapping the shares for assets owned by the former Washington Post publisher.
“We don’t add a tip” on top of our tax bill, Buffett said at the annual meeting. “And we do certain transactions that are tax-driven.” He cited renewable-energy investments that help lower Berkshire’s taxes.
Buffett has shunned bets in publicly traded bonds with yields near record lows, preferring deals in which his reputation and the size of the cash hoard allow Berkshire to lock in better rates than those available to other investors.
Soda, Candy
He has also favored investments in food and beverage companies with well known brands. In addition to the Mars bet, in which Buffett bought $4.4 billion in bonds paying 11.45 percent interest, Berkshire controls the largest stockholding of Coca-Cola Co. and owns See’s Candies and ice-cream chain Dairy Queen.
Buffett’s firm won’t be involved in running Burger King, according to today’s statement. Buffett didn’t return a message left with an assistant seeking comment.
The Burger King deal is “a good development for Berkshire,” said Tom Russo, who oversees about $9 billion including shares of Buffett’s company at Gardner Russo & Gardner. 3G has a long-term approach to investing and management that works well with Berkshire’s time horizons, he said.
Buffett was able to charge higher rates in the financial crisis after alternative sources of funding dried up. He got 10 percent a year on a $5 billion preferred stake in Goldman Sachs and a $3 billion bet on General Electric Co. Both companies redeemed the investments at a premium. Berkshire later swapped warrants it got in those deals for common stock in GE and Goldman Sachs.
Ketchup, Banking
In the Heinz deal, Buffett spent more than $4 billion for common equity and took an $8 billion preferred stake paying 9 percent interest. That transaction also gave Buffett warrants that allow him to increase Berkshire’s stake in the Pittsburgh- based ketchup maker.
Buffett injected capital and confidence into Bank of America with a $5 billion investment announced in August 2011. The bank’s stock plunged 58 percent that year amid concerns that mortgage demands would force it to issue new shares.
As part of that investment, Buffett’s firm received preferred stock paying 6 percent interest and warrants to buy 700 million Bank of America shares at $7.14 apiece, which would make Berkshire the lender’s biggest shareholder. At the current share price, Buffett’s paper profit on those contracts tops $6 billion.
