Call Options Or Put Options On Burger King Worldwide (BKW)?
Burger King (BKW) is making headlines with its acquisition of Tim Hortons (THI). The $11 billion deal will create the third largest fast-food company in the world.
BKW shares are currently trading at $29.96. The stock is trading 12% below the 52-week high of $33.97 and is 61% above the 52-week low of $18.64.
Is this an opportunity to buy call options on BKW because of the company’s huge deal with Tim Hortons? Or should you buy put options on BKW because this tax inversion strategy could backfire?
The bulls make a convincing argument…
Burger King’s acquisition of Canada-based Tim Hortons is clearly being supported by investors, who have sent the stock soaring higher. In fact, the shares are up 36% on the year after a 16% jump over the past week.
The most obvious benefit to BKW is the reduction in tax rates, with corporate rates 20% lower in Canada. The lower tax rates will help the company expand internationally at a much cheaper rate.
Perhaps more importantly, BKW now has significantly diversified its food portfolio with a doughnut and coffee chain. Expect to see Tim Hortons shops popping up around the country.
But the bears have a compelling case as well…
On the other hand, BKW pursuing a tax inversion deal is being widely criticized. The US government may very well change tax laws as more and more companies attempt to escape US taxes.
Furthermore, BKW will still pay American taxes on US-based locations. The cheaper tax rate will only apply to chains added internationally.
Finally, there’s no guarantee Tim Hortons will be a success in the US or outside Canada. BKW is taking on a lot of debt to do this deal with a possible ratings downgrade. So, if it doesn’t work, the company could be in trouble.
So is it time to be bullish on BKW due to the big merger, or should you take a bearish position because the deal isn’t all it’s cracked up to be?
If you think the bulls are right, take a look at buying the BKW October 30 calls for around $1.00.
If you think the bears are right, take a look at buying the BKW October 30 puts for around $1.40.
Yours in Profit,
Gordon Lewis
Category: Call Or Put Options?
