Burger King is in talks to combine with Canadian coffee and doughnut chain Tim Hortons in a deal that would create a fast food powerhouse with a market capitalisation of roughly $18bn.
The companies confirmed merger discussions late yesterday, and said the new company would be the world's third-largest quick service restaurant.
It would be based in Canada, which has lower overall corporate taxes than the United States.
The proposed deal would be structured as a tax inversion transaction to move Burger King's domicile out of the US, and could come as soon as in the next few days, according to sources familiar with the discussions.
Recent attempts by companies for tax inversion deals, which are made to avoid higher US taxes and save money on foreign earnings and cash held outside the United States, have drawn the attention of US President Barack Obama, who criticised a "herd mentality" by companies seeking such deals.
Walgreen recently decided against a tax inversion deal in its acquisition of European pharmacy chain Alliance Boots, saying it was "not in the best long-term interest of shareholders to attempt to re-domicile outside the US"
Amid heightened political sensitivity in the United States to such tax-cutting transactions, Walgreen said it was mindful of the public reaction to a potential inversion deal and its role as an "iconic American consumer retail company with a major portion of its revenues derived from government-funded reimbursement programs."
The companies said 3G Capital, the majority owner of Burger King, will continue to own the majority of the shares in the new combined entity on a pro forma basis, with the remainder held by existing shareholders of Tim Hortons and Burger King.
3G, a New York-based investment firm with Brazilian roots, acquired the then struggling Burger King in 2010 for about $3.3bn.
It later took the company back to market in 2012 but still owns nearly 70% of the firm's shares, according to Thomson Reuters data.
Tim Hortons and Burger King are set to operate as standalone brands within this new entity while benefiting from shared corporate services, the companies said.
Burger King said its experience in building a large global footprint would allow it to help accelerate Tim Hortons's growth in international markets.
If a deal gets sealed this wouldn't be the first time the iconic Canadian restaurant chain moves into foreign hands.
It was bought by Wendy's International in 1995, but later spun out in 2006 after the fast food chain came under pressure from activist investor Nelson Peltz.
While operated from Oakville, Ontario, it kept its corporate headquarters in Delaware before moving it back to Canada in 2009.
Canadian Prime Minister Stephen Harper took some credit for the move, citing the Conservative government’s decision to cut the corporate tax rate.
Since coming to power in 2006, the Conservatives have cut Canada's corporate tax rate to 15%. Public companies also have to pay provincial corporate taxes that then bring their combined federal and provincial tax rate to about 25% or higher.
Tim Hortons and Burger King said they do not plan to comment on this potential deal further unless and until a transaction is agreed, or discussions are discontinued.
Burger King, founded in 1954 and headquartered in Miami, Florida, operates over 13,000 locations in nearly 100 countries and territories across the globe. It has a market capitalisation of about $9.55bn.
Oakville, Canada-based Tim Hortons operates more than 3,500 system wide restaurants in Canada and over 850 in the United States. Its US market cap stands at about $8.4bn.