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Buffett puts shareholders ahead of patriotism in Canadian deal

Published 27/08/2014, 00:47
© Reuters Berkshire Hathaway CEO Warren Buffett listens to a shareholder at the Berkshire-owned Borsheims jewelry store where Buffett was selling jewelry as part of the company annual meeting weekend in Omaha
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By Luciana Lopez

NEW YORK (Reuters) - Warren Buffett may be most famous for the billions of dollars he has made from investing but he is also well known as a cheerleader for the United States.

The Oracle of Omaha routinely exhorts investors to put their money in America, "the mother lode of opportunity," as he wrote in his annual letter this year.

So Buffett's participation in fast-food chain Burger King Worldwide Inc's (N:BKW) purchase of coffee and doughnut chain Tim Hortons Inc (TO:THI) – complete with relocation of Burger King's domicile to Canada – might at first blush raise questions about his patriotism.

Investors and tax experts say Miami-based Burger King's move to Canada through a so-called tax inversion will help curb its U.S. tax bill. Similar recent moves by other U.S. companies - mainly through the purchase of European companies - have drawn the ire of President Barack Obama, who suggested they are corporate deserters lacking economic patriotism.

But analysts and investors say that the Burger King deal underlines the market savvy that's helped him build his fortune more than prompting questions about his commitment to the U.S.

"When Warren Buffett advocates investing in America, as I understand it, that's because that's where the opportunities largely lie," said Meyer Shields, managing director at investment bank Keefe, Bruyette & Woods Inc. "Investing in America is actually the outcome of his analysis instead of the beginning assumption."

Buffett's Berkshire Hathaway (N:BRKa) has committed $3 billion (1.81 billion pounds) of preferred equity for 3G Capital, which controls Burger King, to buy Tim Hortons in a deal worth almost $12 billion. That should give him a juicy return and a stake in any increase in value of the combined entity.

Berkshire, a sprawling conglomerate with more than 80 companies and a wide-ranging stock portfolio, will have no role in operating the new entity.

Berkshire Hathaway and Buffett did not return calls requesting comment.

Buffett tried to explain the reasons for the move to Canada in comments to the Financial Times. "Tim Hortons earns more money than Burger King does," he told the paper. "I just don't know how the Canadians would feel about Tim Hortons moving to Florida. The main thing here is to make the Canadians happy."

NOT A DIME MORE

Buffett, the world's third richest person, has been clear in the past on the question of corporate tax rates.

"Anybody who thinks corporate taxes are too high should look at a chart of corporate taxes as a percentage of GDP since World War II," Buffett said at the annual Berkshire Hathaway stockholders' meeting in Nebraska in May this year in reference to a big drop in that level.

He has also advocated higher tax rates for the ultra rich, noting that his longtime secretary, Debbie Bosanek, pays a higher tax rate than he does.

But for all that Buffett has defended the idea that corporations in the U.S. see enviable profits, he's also been clear that it's not his job to write any more checks to the government than necessary.

"I will not pay a dime more of individual taxes than I owe, and I won't pay a dime more of corporate taxes than we owe," he told Fortune magazine this year.

Berkshire's stock portfolio is stuffed full of iconic American companies, such as Coca Cola (N:KO) and IBM (N:IBM). And the investment company owns plenty of well-known names, as well, including Dairy Queen and insurer Geico.

But in the criteria he's talked about over the years for why he buys a company, such as the simplicity of a business, strong management and earnings power, a U.S. headquarters does not factor.

© Reuters. Berkshire Hathaway CEO Warren Buffett listens to a shareholder at the Berkshire-owned Borsheims jewelry store where Buffett was selling jewelry as part of the company annual meeting weekend in Omaha

Simply put, said Bill Smead, chief investment officer of Smead Capital Management and a Berkshire investor, "Buffett is a capitalist first and a patriot second."

(Reporting by Luciana Lopez; Edited by Martin Howell)

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