Enough already with the Burger King (BKW)/Tim Hortons (THI) deal. Enough with the combination of a sluggish fast-food joint with a donut shop, which is named after an ancient hockey player who doesn't really have a lot of game outside Canada. Enough with "Warren Buffett backs the transaction." If you like this deal, then you should love Starbucks (SBUX) and Chipotle (CMG).
Never have I seen such fawning over a combination of two second-tier players that somehow people think will do better under one roof.
First, Wendy's (WEN) used to own Horton's and gave up on it. We may not think that Wendy's is the greatest operator but it's not like Burger King has some magic touch that Wendy's didn't. The combo didn't ignite. So why will it ignite this time?
Second, hasn't it dawned on people yet that the food chain plays, the companies that are deeply rooted in what is considered to be not natural and not organic have been struggling?
I think that Burger King is paying so much to Horton shareholders not because of an inversion but, rather, out of desperation. It sees the McDonald's (MCD) writing on the wall. The next generation has turned on that Burger King menu. There simply isn't enough to eat that makes this company viable out 10 years.
As for Horton's, sure it had a good quarter, but I keep thinking about how Dunkin' Brands (DNKN) had a ton of good quarters and a huge runway of expansion to California, but its last two quarters were flat-out disappointing. I accepted that the first quarter might have been hobbled by weather. But the second quarter? I wonder if it was hobbled by donuts? Why not worry? Have you seen those Krispy Kreme (KKD) numbers? Only huge insider buying is keeping me from telling you to dump that stock. It has been a terrible disappointment -- it was supposed to be bailed out by international expansion, one of the key reasons for the Horton-Burger King Worldwide tie-up. That company blamed the weather, too, for its recently weak results. But it has me wondering whether the turn toward healthy eating hasn't changed the trajectory.
I do understand exactly why people want to own this combination. They can't believe that tastes could change so quickly. They can't believe that it is a secular decline in sales for junk and not some sort of cyclical pause. I am telling you that one look at what is selling at the supermarket tells you what people want. A second look at Chipotle, with those 17% comps, makes you think that the change isn't glacial, it is rapid and tectonic.
Plus, let's face it, at these prices, you are getting Starbucks for the same price-to-earnings multiple as Burger King's to merge with Horton's. Starbucks has consistent 7% growth -- that's a heck of a lot better than Hortons. More importantly, it is proven growth. Starbucks flies everywhere. Hortons doesn't even fly all that well here.
I am not saying that it's a bad deal. I am saying it's a deal you need to cash out of and move on. Go buy stock in Starbucks and Chipotle. They both represent consistent growth at a high price, which is a heck of a lot better than inconsistent to no growth at a high price. Consider yourself lucky: Burger King's desperation is your win. Take it.