Would oligopoly or monopolistic competition strategy fit best for this case?

Tax Inversion 2 In reality, the tax rate aspect of the deal were quite modest (Sahadi, 2014) as BK's US effective tax rate was about 27.5% and Canada's rate was 26.5%. Experts pointed out another tax benet of far greater consequence, however. Prots repatriated to a Canadian based BK would not face double taxation as they did if brought to the US. BK stood to avoid a 40% tax on $500 million in foreign income by moving its tax residence from the US to Canada. The market's early response was clear: the price of Tim Horton's stock went up by [9% with the announcement. This was the norm when rms were targets of acquisitions. BK shares also went up, by 19.5%. These increases generated a $5 billion increase in value for the combined rms. How much of this increase belonged to synergy benets of the merger versus tax benets was debatable. Lessons from Another Inversion In the fall of 20 l 4, Behring had a notable example to consider before nalizing the merger. Walgreens had initially purchased 45% of Swiss rm Alliance Boots GmbH in 2012 with an option to purchase the balance. When completed this move would create the rst global pharmacy enterprise with more than 11,000 stores in 10 countries, and a large wholesale distribution network in 20 countries (Walgreens Press Release, 2014). The merger held the potential for major cost efciencies, just as BK had hoped to achieve through its merger. Moreover, moving the tax residence of Walgreens to Europe offered signicant tax advantages. US investors reacted favorably over the summer of 2014 to the anticipated Walgreen move. Although Walgreens had sophisticated social media capabilities (Bruell, 2012), social media forces went to work in a signicant effort to disrupt the merger (Carr, 2014). One group, Change to Win, secured more than 300,000 social media responses, in part with a \"Walgreens gone wrong\" Facebook page. After a blizzard of negative publicity, Walgreens ultimately announced on August 6, 2014 that they would continue the merger but abandon the tax inversion effort. The firm kept combined corporate ofces in Chicago (Ziobro, 2014). Wall Street did not agree with this decision, and Walgreens' stock price dropped by 14.3% the day of the announcement. Behring's quandary at BK had several similarities to Walgreens' situation and one major difference. Both rms stood to gain economies of scale through their mergers. As noted, early stock market reaction seemed to favor both mergers and related tax inversions. However, as consumer oriented rms both Walgreens and BK had to consider negative public relations, fueled by social media, of inversion deals. However, a signicant difference came in their customer bases. Although both served a wide range of end consumers, Walgreens' drug sales were largely funded by government run health plans, including Medicaid and Medicare. Hence, Walgreens faced political pressures that BK did not. Practitioner sources generally supported tax inversions (Chambers, 2014, BakerHostetler, 2014) as a strategy while academic research on the subject (Capurso, 2016, Cloyd, 2003, Desai 2009) provided inconsistent guidance on the long-term benefits of inversions. Given tax and customer aspects, should Behring ask his board to keep a US tax residence? Tax Inversion 1 TAX INVERSIONS: MAXIMIZING WEALTH BY GOING ABROAD This critical incident was prepared by the authors and is intended to be used as a basisfor class discussion. The views presented here are those of the authors based on their professionai judgment and do not necessarily reect the views of the Society for Case Research. This critical incident is based solely on publicly avaiiabie sources. Copyright 2014 by the Societyfor Case Research and the authors. No part of this work may be reproduced or used in any form or by any means without the written permission of the Society for Case Research. In the fall of 2014, Alex Behring, CEO of Burger King (BK) faced a quandary on where to locate his rm's headquarters. BK had announced a merger with Tim Horton's of Canada to create a behemoth in the fast food business. The merger was largely nonwcontroversial as it offered improved economies of scale and a new tool to grow BK's breakfast offerings. Controversy, however, came in where to locate headquarters for the combined rm. Like other CEOs, Behring was tempted to relocate BK's headquarters (and tax residence) outside the US in a corporate "inversion\" move to reduce the firrn's tax bills and, hence, increase the rm's value, BK, however, faced an outpouring of negative social media when reports suggested the rm would move its tax residence to Canada. In fact, consumers generally viewed the merger and tax inversion as one action. In one thread nearly 3,000 largely negative posts delivered messages like \""If you attempt to buy Tim Horton's for the purposes of evading US Taxes, I will NEVER step foot in another Burger King again...Don't do it" (Tadeo, 2014). Indeed, relocating one's tax residence to a different country to avoid taxes generated strong negative feelings among politicians and citizens with patriotic and nationalistic feelings. Given tax and customer aspects, should Behring ask his board to keep a US tax residence? Corporate Tax Inversions The United States has the highest corporate tax rate in the developed world: 40%. Regardless of the location of operations, rms were obligated to pay this rate on their prots (Mider, 2014). However, the \"effective\" rate a rm paid was often lower when one considered deductions. This high rate motivated US rms to consider merging with foreign firms in low tax countries and subsequently moving their tax residence. By 2014, several US firms including Pzer, Walgreens and Medtronic were pursuing tax inversion strategies (Mider, 2014). Such moves cost the US Treasury lost tax revenue, and the strategy triggered calls for legislation (Walker, 2014). In late 2014, BK joined these rms considering a tax inversion strategy of its own. BK acquired Tim Horton's Inc., a Canadian fast food restaurant, in a deal announced on August 26, 2014. Through this deal, the new global company would have $23 billion in sales and over 18,000 restaurants. Both rms were to keep their respective headquarters in the original locations. However, the new global firm would have it tax residence in tax friendlier Canada (Burger King Press Release, 2014). Burger King had undergone a number of ownership changes over the years. Tim Horton, however, was an iconic Canadian brand and was much beloved by Canadian consumers. As troubled as US consumers were with BK, Horton's Canadian customers were even more concerned and they expressed this in social media