Warren Buffett may be most famous for the billions he has made from investing, but he is also well-known for being a cheerleader for the US, routinely exhorting investors to put their money in “the mother lode of opportunity,” as he dubbed the country in his annual letter this year.
So the Oracle of Omaha’s participation in fast food chain Burger King Worldwide Inc’s purchase of coffee-and-doughnut chain Tim Hortons Inc — complete with a 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 US tax bill. Similar recent moves by other US companies — mainly through the purchase of European companies — have drawn the ire of US President Barack Obama, who suggested they are corporate deserters lacking economic patriotism.
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Yet analysts and investors say that the Burger King deal underlines the market savvy that has helped Buffet build his fortune, more than prompting questions about his commitment to the US.
“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,” Shields said.
Buffett’s Berkshire Hathaway has committed US$3 billion of preferred equity for 3G Capital, which controls Burger King, to buy Tim Hortons in a deal worth almost US$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, in which he said: “Tim Hortons earns more money than Burger King does. 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.”
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,” he said at the annual Berkshire Hathaway stockholders’ meeting in Nebraska in May this year in reference to a big drop in that level.
The Oracle has also advocated higher tax rates for the ultrarich, noting that his longtime secretary, Debbie Bosanek, pays a higher tax rate than he does.
Yet for all Buffett’s defense of the idea that corporations in the US see enviable profits, he has also been clear that it is 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 US companies, such as Coca-Cola Inc and IBM Corp, and the investment company also owns plenty of well-known names, including soft serve franchise Dairy Queen Inc and auto insurer GEICO.
Yet in the criteria for buying a company that he has given over the years, such as the simplicity of a business, strong management and earning power, a US headquarters is not a factor.
Simply put, “Buffett is a capitalist first and a patriot second,” said Bill Smead, chief investment officer of Smead Capital Management Inc and a Berkshire investor.
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