The big financial news in Canada these days is that Burger King is acquiring Tim Hortons in a cash and stock deal worth $12 billion. When big events like this happens, I typically get a number of emails on the topic, this time around, readers are wondering what to do with their shares of Tim Hortons (THI).
While there are many types of mergers and acquisitions, in this case, Burger King is a publicly traded company that is in the process of acquiring another publicly traded company. In some cases, the acquiring company will offer straight cash which they will finance by issuing more shares, or obtaining debt. In other cases, the acquiring company will simply offer shares in exchange for buying out the outstanding shares of the company to be acquired. In this situation, Burger King is offering cash plus shares to THI shareholders. More specifically, for each share of THI, the deal is $65.50 cash and 0.8025 common shares of the new company formed.
So how does this affect existing THI shareholders? Owners of THI shares have a choice, either to wait until the deal is completed to take $65.50 cash and 0.8025 shares of the new company per share of THI held, or sell their THI shares in the open market before the deal closes.
Holding During a Merger/Acquisition
As a shareholder of THI, lets take a look at my situation. Say that I own 100 shares of THI, if I hold until the deal closes, I get $6,550 in cash and 80 shares of the new Burger King/Tim Hortons company. While getting shares of the new company may potentially be great investment, it has uncertainty as Burger King doesn’t have the same brand power as Tim Hortons (at least not in Canada).
Selling Your Shares
What if I want to cash out of the deal now? As with most acquisitions, the share price of the company to be acquired usually spikes to close to the acquisition price. In this case, THI traded around $63 (on NYSE) the day before the merger announcement and rocketed to $82 after the acquisition details were released. Selling my 100 shares will net me $8,200 cash, rather than getting a portion cash and another portion in shares of the new company.
What Did I Do?
I sold my shares in the market and took the cash. If I like what I see when the new company forms, I may reconsider it then. As well, since the shares were in my TFSA, it was an easier choice since capital gains are sheltered. Taking the cash and stock deal would be more attractive in a taxable account as it would help defer some of of the taxable capital gains, but in this case, I likely still would have made the same choice.
What do you typically do when a publicly traded company that you own becomes acquired?
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