Double-double drinkers uneasy about Burger King’s takeover of Tim Hortons have legitimate reason to worry, according to a Canadian think-tank that says the deal will have “overwhelmingly negative consequences” for Canadians.
A study by the non-profit Canadian Centre for Policy Alternatives says the pending acquisition, beyond just putting the beloved Canadian brand under foreign control, could lead to massive job cuts, lost tax revenues, and declining product quality.
“Canadians are likely to see layoffs due to this deal, and the Canadian government’s likely to lose substantial amounts of tax revenue due to (it),” says David MacDonald, senior economist at the CCPA.
The group says the chain’s annual tax bill could fall by as much as $667 million, because payments on the nearly $14 billion in debt that Burger King is using to finance the deal are tax deductible.
MacDonald and colleagues base their findings partly on past deals done by 3G Capital, the Brazilian investment firm that owns Burger King.
3G is hardly a household name in Canada, but it made headlines last year when its takeover of Heinz led to the closure of a ketchup plant in Leamington, Ont., as well as 740 job losses.
“3G Capital builds its profits on the costs it squeezes out of companies it buys, and Canadians don’t have to look too far to see evidence of that,” says MacDonald.
He estimates the Tim Horton’s takeover could lead to more than 700 layoffs, mostly at the company’s head office.
3G has pledged not to cut jobs at any Tim Hortons restaurants, but MacDonald notes that many of the outlets are privately-owned franchises.
And some of those franchisees could also suffer, CCPA says, if 3G follows the game plan from its 2010 takeover of Burger King and enters into preferential deals with master franchisees, who control large territories of stores. This could squeeze out services and investment for smaller owners and lead to closures or more job losses.
And just in case you were thinking that the internal machinations of a coffee chain don’t matter to you as long as the java keeps flowing, CCPA posits the deal could ultimately erode the quality of the products that keep the lines at the local Timmies out the door.
The group says that 3G’s founders raised prices and watered down beer after they engineered InBev’s 2008 takeover of brewer Anheuser-Busch. And they also point to the 1995 takeover of Tim Hortons by Wendy’s, which led to the company stopping its in-store baking and instead relying on shipped-in frozen products.
Burger King and 3G did not respond to requests for comment, while Tim Hortons said in a statement the transaction “will create a new global leader in the (fast food) sector that will be headquartered and listed in Canada, and that will preserve the independence of the Tim Hortons brand, as well as our traditional levels of community support, restaurant-level jobs and franchisee relationships.”
But before you start stockpiling Timbits, know that the Canadian government has yet to approve the deal, and may not unless it produces a “net benefit” for Canada as required by the Investment Canada Act.
MacDonald said he sees little net benefit in the deal’s current form, and says the government should demand amendments from 3G to approve it.
“I think the way it’s structured presently, I don’t think there’s substantial upside for Tim Hortons. There’s certainly upside for 3G investors,” he says.
“However, what’s good for 3G investors is not necessarily good for Canadians.”