The jury is out as to how much of the Burger King-Tim Horton merger is driven by the desire for tax savings. So far, the range seems to be modestly to not very much. The Los Angeles Times noted “Burger King's overall effective tax rate in 2013 was 27.5%, according to its annual report. Tim Hortons' effective tax rate for the same year was 26.8%.” That hardly seems motivation for a deal valued at almost $12 billion. More likely, creating a competitor to fast food’s No. 1, McDonald's, was the driving force. The merger creates the world’s third-largest fast-food company.
Before we proceed, you might want to get a better understanding of the details of this transaction: Read my colleague Matt Levine’s excellent Warren Buffett Funds Global Donut-Burger Behemoth; for a good history of tax inversions, see this quick take.
As we have discussed, I find corporate inversions to be rather distasteful, and suggested several simple steps to make them less desirable to corporate America. Let me add that I don't worship at the altar of Berkshire Hathaway, nor do I think of its leader as “St. Warren.” However, the criticisms of his agreement to finance 25 percent of the Burger King-Tim Horton deal -- $3 billion dollars of preferred stock with a 9 percent coupon -- call out for a response.
Some of the critiques of Warren Buffett are silly. There are so many misstatements and omissions in the group (See this, this, this, this and this) that time and space don't permit a review or debunking of them all.
The willful failure to recognize the difference between what laws are at present and arguments for what they should be are at best hypocritical and, at worst, silly. One can surely operate within what is allowable by law while still arguing for changes in that controlling legal framework.
The alternatives are to operate as you want the laws to be, and not as they are, to the detriment of Berkshire’s shareholders. One only needs to put this into different contexts to see that the economics of that are stupid.
Several of my colleagues at Bloomberg View and elsewhere have argued that the mortgage-interest deduction is a waste of taxpayer money, and an unfair subsidy to homeowners at the expense of renters. However, all of them who own a home take the deduction on their itemized 1040. That isn't hypocritical; it is simply intelligent tax preparation.
Many people think stock options should be expensed like any ordinary employment cost. I guess these same people shouldn't accept stock options as part of their compensation because they believe the way the law accounts for them is misguided.
There are many, many other examples, but I find this entire exercise so fatuous that I refuse to continue.
Buffett has long maintained that societal obligations should be more equitably distributed, that the top 1 percent (or even 10 percent) are undertaxed, and that the privileges of wealth should be balanced by a duty toward those who have been denied such privileges. There is nothing radical in these middle-of -the-road views, although you might not have guessed that based on some of the invective hurled Buffett's way.
If you want to criticize Warren Buffett, I am sure you can find plenty of legitimate reasons to do so. But making money for his shareholders by operating within the limits of law isn't one of them.
To contact the author on this story:
Barry L Ritholtz at email@example.com
To contact the editor on this story:
James Greiff at firstname.lastname@example.org