Tim Hortons Inc. has agreed to be purchased by Burger King Worldwide, Inc., which would create the third-largest fast food company in the world with estimated combined sales around $23 billion USD and restaurants in 100 countries (reported here). The merger would provide Tim Hortons with expansion opportunities into new markets.

As part of the proposed transaction, the combined headquarters would be located in Canada, where the company would benefit from a lower corporate tax rate, and the company would be listed on the TSX. The proposed merger is expected to help accelerate the expansion of Tim Hortons.

The merger was subject to a formal review by the Competition Bureau of Canada. Parties must generally notify the Bureau of a proposed transaction when the assets in Canada or revenues of the target firm generated in or from Canada exceed $82 million CAD (this threshold increases annually), and when the combined Canadian assets or revenues of the parties and their respective affiliates in, from, or into Canada exceed $400 million CAD.

The Bureau concluded on October 28, 2014 that the proposed merger would not lead to a substantial lessening or prevention of competition. The primary reason for this decision is that there are a large number of competitors in the fast food industry, as well as the low barriers to entry into the market. The proposed transaction received clearance from United States anti-trust regulators in September.

The merger was also subject to a review under the Investment Canada Act. Non-Canadian WTO member investors must generally notify Investment Canada of a proposed transaction to acquire control of a Canadian business when the assets of the Canadian business exceed $354 million CAD (this threshold increases annually).

On December 4, 2014, the proposed transaction was approved by Industry Canada. As part of the approval, the companies agreed not to combine their brands in Canada or the United States, so that Tim Hortons will continue to be managed as a “distinct brand.” Other conditions include continuing current employment levels, and that Canadians must be at least 50% of Tim Hortons’ board of directors.

If the proposed transaction proceeds, the brands will be managed independently but will be able to rely on combined resources and expertise to expand their markets.

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