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Term Sheet — Tuesday, August 26

Random Ramblings

Burger King made it official this morning, announcing that it would acquire Canadian coffee-and-doughnut chain Tim Hortons in an $11.4 billion deal that will include $3 billion in preferred equity financing from Warren Buffett’s Berkshire Hathaway. 3G Capital, the Brazilian private equity firm that owns Burger King, would retain a majority stake in the combined company. A bunch of notes on this one:

Background: According to a source familiar with the situation, 3G first reached out to Buffett back in 2010 about partnering on its original takeover of Burger King, but he demurred (although he already was in the quick-serve food biz via Berkshire’s ownership of Dairy Queen). Among Buffett’s concerns about Burger King were a succession of failed CEOs and the seeming invincibility of McDonald’s. Since then, Burger King’s revenue has consistently declined during 3G’s ownership (in part due to its divestiture of company-owned stores), although both its profits and EBITDA have increased (3G is known for its laser-focus on cutting costs). The company’s stock also is up more than 100% since returning to the public markets in June 2012.

Yes, this is a tax inversion: Burger King is the acquiring company, but would move its headquarters from Miami, Fla. to Canada. As such, it no longer would pay U.S. tax on its foreign operations – which comprised 44% of its 2013 revenue. 

The misdirection: Burger King is arguing that the merger will create a stronger and larger company that ultimately will produce more U.S. tax revenue than would BK and Tim Hortons on their own (Hortons has hundreds of U.S. stores). This may be true, but then why not simply base the combined company in Miami? (hint: the answer begins with a “t”). 

Change in plans: Part of me wonders if Burger King might ultimately relent on the inversion strategy, due to public pressure (both consumer and political). Kind of like what Walgreens recently did with its Alliance Boots transaction. But 3G isn’t exactly a shrinking violet, and the tax blowback won’t affect the Tim Hortons business (which currently has 3x the revenue of Burger King). 

Buffett factor: Well, this is awkward. Yesterday we wondered if Buffett would chime in on the deal, given his past partnership with 3G on Heinz and his public statements about how U.S. companies are not unduly burdened by corporate tax rates. Sounds like he went with 3G on this one. Makes the politics a bit more interesting, given that those in Congress who support inversion reform (i.e., Obama and Democrats) tend to lionize Buffett while those who don’t want change (i.e., Republicans) tend to criticize Buffett. 

Buffett’s PR out: I haven’t talked to Buffett about this, but he’d possibly say something like: I’m paying U.S. tax on the dividends and, more importantly, Canada would be the combined company’s largest single market (meaning that it likely wouldn’t be subject to even the strictest inversion reform proposals).

Word of warning: It wouldn’t be too surprising if Tim Hortons executives are polishing off their resumes this morning. Just check out Jennifer Reingold’s piece from last year on what happened after it bought Heinz. 

Additional resources: For more on the actual business implications of this deal for BK and Hortons, please read this piece from Beth Kowitt. For more on the political implications, please read this from our D.C. correspondent Tory Newmyer. 

Shameless self-promotion: I did a couple of TV hits on the news, including a CNN interview with Jake Tapper and CBS This Morning. Watch them here and here

On the line: Burger King just began an investor call, and will be holding a media call at 11:30am ET. Check back at Fortune.com for updates throughout the day.

• Next up: Last Friday we broke news that Todd Park, co-founder of both Castlight and Athenahealth, was stepping down as America’s chief technology officer. Word is that the Obama Administration considered several venture capitalists to succeed Park, but ultimately narrowed its choices down to three individuals who most recently were in the operating space (current or former at Google, LinkedIn and Twitter). One of those folks, however, did do a brief quasi-VC role a couple years back. The official choice is expected to be unveiled soon.

• 41k and counting: Every time I add another thousand Twitter followers, I like to remind you to join the others. That way we can chat throughout the day. I’m @danprimack.

THE BIG DEAL

• Amazon (Nasdaq: AMZN) has agreed to acquire Twitch Interactive Inc., a San Francisco–based live video platform for gamers. The deal is valued at $970 million in cash, with a source saying that the overall value could rise to $1.1 billion (once retention bonuses, assumed options, etc. are included).

Twitch originally was launched as Justin.tv, raising more than $8 million in VC funding from Y Combinator, Alsop Louie Ventures and Felicis Ventures. It later changed strategy (and name), later raising around $35 million from Bessemer Venture Partners, Thrive Capital, Alsop Louie, WestSummit Capital, Draper Associates and Take-Two Interactive Software. Its most recent funding round was a $20 million Series C deal last summer at around a $100 million pre-money valuation. A side business called Socialcam was sold to Autodesk Inc. in for $60 million last August.

Google reached out earlier this year to acquire Twitch, but the two sides could not settle on terms. Twitch then hired Qatalyst Partners to find a buyer. Read more.

VENTURE CAPITAL DEALS

• ZipRecruiter, a Santa Monica, Calif.-based hiring platform for small and mid-sized businesses, has raised $63 million in Series A funding. Institutional Venture Partners led the round, and was joined by Basepoint and Industry Ventures. www.ziprecruiter.com

• AirStrip, a San Antonio, Texas-based provider of mobile healthcare applications, has raised $25 million in new VC funding. Backers include the Gary and Mary West Health Investment Fund, Sequoia Capital and Wellcome Trust. www.airstrip.com

• FortuneRock (China) Ltd., a Beijing-based developer of gene-based recombinant protein drugs, has raised $24 million in new VC funding. Jinhua Pharmaceutical Co. was joined on the deal by undisclosed “foreign and domestic Chinese private investors.” www.fortunerock.com

• Theatro, a Dallas-based developer of voice-controlled wearable devices, has raised $8.8 million in Series A funding led by Khosla Ventures ($5m). www.theatro.com

• Feedvisor, an Israel-based “algorithmic pricing and business intelligence platform for online retailers,” has raised $6 million in Series A funding led by Square Peg Capital (Australia), according to TechCrunch. Return backers include JAL Ventures, Oryzn Capital and Micro Angel Fund. Read more

• Korbit, a South Korean bitcoin exchange, has raised $3 million in Series A funding. SoftBank Ventures Korea led the round, and was joined by Pantera Capital, BAM Ventures and return backers Strong Ventures, Bitcoin Opportunity Corp., Tim Draper and Pietro Dova. www.korbit.co.kr

• LTG Exam Prep Platform, a Boston–based provider of mobile study apps for standardized tests like the GMAT, has raised $3 million in VC funding from Tal Education Group, Atlas Venture, Jamie McCourt, Margot Carter, Yongjin Group and Zhen Fund. www.prep4gmat.com

PRIVATE EQUITY DEALS

Brentwood Associates has acquired Marshall Retail Group, a Las Vegas–based operator of specialty retail stores at casino resorts and airports, from ICV Partners. No financial terms were disclosed. www.marshallretailgroup.com

• Kohlberg Kravis Roberts & Co. has agreed to invest $400 million for an 18% stake in Fujian Sunner Development Co., a listed Chinese chicken meat producer. www.kkr.com

• Lone Star Funds has sold German commercial property lender Duesseldorfer Hypothekenbank AG to an investor group led by Attestor Capital. No financial terms were disclosed. www.duesshyp.de

• The Riverside Company has acquired DMA Corp., a Beaverton, Ore.-based provider of profitability analytics and income risk strategy for banks and credit unions. No financial terms were disclosed. www.riversidecompany.com

• Succession Capital has acquired Sienna Sky Jewelry, a Longmont, Colo.–based maker of fashion jewelry. No financial terms were disclosed.  www.lefthandstudiosllc.com

• Warburg Pincus has agreed to invest $200 million for a minority stake in India-based Kalyan Jewellers at an enterprise value of between $1.2 billion and $1.4 billion, according to the Economic Times. Read more

IPOs

• Calithera Biosciences, a South San Francisco-based developer of cancer therapeutics, has filed for an $80 million IPO. It plans to trade on the Nasdaq under ticker symbol CALA, with Citigroup and Leerink Partners serving as lead underwriters. The company has raised over $100 million in VC funding from Delphi Ventures (19.5% pre-IPO stake), Morgenthaler Ventures (18.3%), Advanced Technology Ventures (18.3%), Adage Capital Partners (18.1%), T. Rowe Price (7.2%), Wellington Management (6%) and Longwood Fund (5.8%). www.calithera.com

• Cone Midstream Partners LP, a Canonsburg, Penn.-based 50/50 joint venture between Consol Energy (NYSE: CNX) and Noble Energy (NYSE: NBL) to own pipeline in the Marcellus Shale, has filed for a $350 million IPO. It plans to trade on the NYSE under ticker symbol CNNX, with Wells Fargo, BofA Merrill Lynch and Baird serving as lead underwriters. www.consolenergy.com

• Hubspot Inc., a Boston-based provider of a marketing and sales SaaS platform, has filed for a $100 million IPO. It plans to trade on the NYSE under ticker symbol HUBS, with Morgan Stanley, J.P. Morgan and UBS serving as lead underwriters. The company reports a $53,000 net loss on around $51 million in revenue for the first half of 2014, compared to $45,000 in net income on $35 million in revenue for the year-earlier period. Hubspot has raised around $100 million in VC funding, from firms like General Catalyst Partners (27.1% pre-IPO stake), Matrix Partners (17.1%), Sequoia Capital (10.3%), Scale Venture Partners (6.8%) and Charles River Ventures (5%). www.hubspot.com

EXITS

• Lockheed Martin Corp. (NYSE:LMT) has acquired Sun Catalytix Corp., a Cambridge, Mass.-based developer of energy storage and renewable fuel solutions. No financial terms were disclosed. The company had raised more than $10 million in VC funding from Polaris Partners and Tata Ltd.  www.suncatalytix.com

• Medtronic Inc. (NYSE: MDT) has acquired Sapiens Steering Brain Stimulation, a Dutch developer of deep-brain stimulation technologies, for approximately $200 million in cash. Sapients had raised around 23 million in VC funding from Wellington Partners, Edmond de Rothschild Investment Partners, LSP, the Wellcome Trust, The Michael J. Fox Foundation and Agentschap NL. www.sapiensneuro.com

OTHER DEALS

• Burger King Worldwide Inc. (NYSE: BKW) formally announced its deal to acquire Canada’s Tim Hortons Inc. (TSX, NYSE: THI), after which Burger King majority owner 3G Group would hold a 51% stake in the combined company. Warren Buffett’s Berkshire Hathaway would lend around $3 billion to help finance the deal, while other lenders include J.P. Morgan and Wells Fargo. Read more.

FIRMS & FUNDS

• No firm or fund news this morning…

MOVING IN, UP, ON & OUT

• René Obermann, CEO of Dutch telecom company Ziggo and former CEO of Deutsche Telecom, is planning to join Warburg Pincus as a partner, according to the FT. Read more

• Jaka Prasetya has joined Kohlberg Kravis Roberts & Co. as a Singapore-based managing director in charge of credit and special situations activities in Southeast Asia. He previously founded mid-market lender Leafgreen Capital. Also joining KKR will be fellow Leafgreen partners Rahul Bhargava and Allan So. www.kkr.com

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