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The TI of December 2012, with its very low leverage, could have considered making a bid for Burger King. However, the TI of July 2014 no longer had the financial flexibility and buffer to consider a Burger King transaction. So-called “activist” hedge funds, all too often, propose stratagems that work well for their funds’ performance but hamper the growth of industrial firms and make them more vulnerable in difficult times.

If TI still had the financial wherewithal, should it have bid to buy Burger King? After all, TI needs no “financial inversion” to benefit from the favourable Canadian corporate income tax regime, which is touted as a rationale for the transaction. (Some observers believe that another reason for transferring Burger King’s legal head office to Canada is to sooth Investment Canada, which will have to approve the transaction and assess whether it brings “net benefits for Canada.”)

Well, let’s remember that between 1995 and 2005, TI was part of the Wendy’s International Group (Wendy’s being a direct competitor of McDonald’s and Burger King). In 2005, some activist funds, including the omnipresent Bill Ackman (Pershing Square – which holds almost 11% of the Burger King shares), made the case forcefully that Wendy’s should spin-off Tim Hortons by listing it on the stock market.

In a letter addressed to Wendy’s senior management, Ackman, who, at the time, held 9.9% of its shares, wrote: “We believe that many Wendy’s shareholders and members of the Wall Street research analyst community have frequently questioned the benefits of having Tim Hortons under the same corporate structure as Wendy’s given the minimal synergies that exist between the two companies. (…) As such, we believe that as long as Tim Hortons is owned under the Wendy’s corporate umbrella, the Company will trade at a depressed valuation.”

In other words, it is a bad idea to merge two such disparate entities as Wendy’s (or Burger King) and Tim Hortons into one and the same company.

It would not be surprising if, a few years hence, some activist hedge funds make the case that Tim Hortons should again be spun off from Burger King. Maybe once the benefits of tax inversion become less significant.

Yvan Allaire is executive chair, IGOPP.