MELISSA BLOCK, HOST:
Burger King is the latest big American company looking at relocating its headquarters outside the United States. The home of the whopper is in talks to merge with the Ontario-based donut chain Tim Horton's and create a new food company in Canada. This kind of business move is called an inversion. It would reduce Burger King's U.S. tax bill considerably. NPR's Jim Zarroli has more on why BK is looking north.
JIM ZARROLI, BYLINE: Named for an ice hockey player, Tim Horton's is an iconic Canadian company. It opened 50 years ago selling coffee and doughnuts. But since then, its menu has expanded considerably. Joel Baum is a professor of management at the University of Toronto.
JOEL BAUM: The drive-through's - they line up around the buildings to get their Timmy's, as it's known. And they are prolific here.
ZARROLI: Over the years Tim Horton's has tried to expand into the United States without great success. A merger with Burger King could finally give the company a real foothold in the U.S. market.
And Baum says joining the two companies together might produce a lot of business synergies. For instance, Tim Horton's could begin selling its coffee in Burger King.
BAUM: A lot of these places now with multiple brands are trying to create efficiencies in distribution and retail scope and so forth by pairing them.
ZARROLI: And not incidentally, the deal would also sharply cut Burger King's tax bill. By merging with Tim Horton's and moving its headquarters to Canada, Burger King would no longer have to pay the high U.S. tax rate on overseas earnings. And Lee Sheppard, contributing editor of Tax Notes, says the new Canadian-based company can cut its taxes in other ways. For instance, she says, it can lend money to its U.S. subsidiary.
LEE SHEPPARD: And that interest is deductible. And that interest is so huge - that amount of it is so huge that you can wash out your U.S.-taxable income.
ZARROLI: Inversions like this have become more and more popular with U.S. corporations, and Canada has become a more attractive destination for inversions as its conservative government has been cutting corporate taxes. But inversions have also become controversial in the U.S., and the Obama administration is searching for ways to rein them in.
Sheppard points out that Walgreens backed out of an inversion deal with a Swiss company because of concern about a possible public backlash. And she says a famous American company like Burger King will have to weigh whether the money it saves in taxes is worth the damage to it's reputation.
SHEPPARD: The board has to consider - well, you know, we're a highly visible company in a consumer-products business, and maybe we - you know, maybe we should think twice about doing this, especially in light of the Walgreens thing.
ZARROLI: For now, it's not even clear the deal will get that far. Burger King issued a statement yesterday confirming talks with Tim Horton's, but stressed that the deal could still fall through. Investors, however, seem to like the merger idea, and shares of both companies were sharply higher today. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.
