Thursday, November 13, 2014

SHARE releases ESG concerns regarding Tim Hortons/Burger King merger

SHARE this week released a proxy advisory regarding environmental, social and governance (ESG) issues that may be of concern to shareholders in the Tim Hortons-Burger King merger proposal. 


In a joint proxy circular issued earlier this month, Tim Hortons and Burger King Worldwide described details of a deal touted as the largest restaurant merger in history, creating a post-merger entity with combined global sales of $23 billion and with 18,000 restaurant locations in 98 countries.

After analyzing the currently available information on the proposed merger, SHARE has identified certain ESG issues that may be of concern to shareholders of a successfully merged new entity, including:
  • Inherited reputational risks from BKW’s U.S. employment practices
  • Differences in sustainability reporting between the two companies;
  • Potential job losses and decreased tax contributions;
  • Lack of independent directors;
  • Excessive executive compensation

Tim Hortons has published comprehensive sustainability reports in recent years, achieving a B+ level of reporting based on the Global Reporting Initiative (GRI) framework. Burger King, however, does not release annual sustainability reports. To date, there have been no specific commitments from Tim Hortons or its new owners regarding the continuation of GRI-based sustainability reporting. 


A prominent national campaign in the U.S. has targeted the fast food industry for the extremely low wages paid to employees. In addition, the National Labor Relations Board recently censured a large Burger King franchisee for its anti-union activities.

Concerns have also been raised about cuts to operational costs by 3G Capital, Burger King’s owner, which could take the form of hundreds of layoffs at Tim Hortons’ head offices and distribution centres, considering 3G’s pattern of similar losses which occurred at Heinz and Labatt plants after takeovers by 3G Capital.


3G Capital has a history of poor corporate governance; BKW’s board does not have a majority of independent directors, has no nominating committees, and other key committees, such as the compensation committee, are entirely composed of insider directors. By contrast, at least two-thirds of the current Tim Hortons board are independent directors and its audit committee is entirely independent.


The proposed merger may raise ESG concerns for long-term investors who will now be faced with new governance structures and practices as well as new risk profiles based on ownership of Burger King’s global operations.

  • SHARE asks if the combined company will continue and expand THI’s practice of issuing regular sustainability reports for investors based on GRI indicators.
  • How will reputational risks from Burger King’s employment practices in the U.S. impact on the combined company’s value?·    
  • Will 3G Capital and Burger King be making specific commitments regarding retention of employees at company-controlled facilities in Canada?·      
  • What will be the merged company’s approach to Canadian taxes?
  • Will the company commit to nominating independent directors to at least two-thirds of the board of the new company after the merger?
All good questions from SHARE and ones investors deserve answers to.

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