Burger King is in talks to buy Tim Hortons in hopes of creating a new, publicly traded company with its headquarters in Canada.
With a new base in Canada, Burger King, now based in Miami, could shave its U.S. tax bill.
Shares of both companies jumped 17 percent before the opening bell, both heading toward all-time highs.
The majority owner of Burger King, 3G Capital, would own the majority of shares of the new company.
Tax inversions have become increasingly popular among U.S. companies trying to cut costs.
In an inversion, a U.S. company reorganizes in a country with a lower tax rate by acquiring or merging with a company there. Inversions allow companies to transfer money earned overseas to the parent company without paying additional U.S. taxes. That money can be used to reinvest in the business or to fund dividends and buybacks, among other things.
Companies like AbbVie, a pharmaceutical with its headquarters just outside Chicago, have tied up with companies overseas to achieve that type of tax cut.
More recently, Walgreen, the huge retail chain, backed away from such a plan under intense pressure in what is becoming an increasingly hot political issue.
3G Capital took Burger King public again in 2012. The investment firm teamed with Berkshire Hathaway Inc. last year to take H.J. Heinz Co. private in a $23 billion deal. 3G Capital is known for aggressive cost-cutting at the companies it acquires.
Tim Hortons, known for its doughnuts and coffee, was purchased by Wendy's International Inc. in 1995. In 2006 it completed an initial public offering and was spun off as a separate company.
The deal would also allow Tim Hortons to accelerate its growth in international markets. The company had 4,546 restaurants as of June 29, with 3,630 in Canada, 866 in the U.S. and 50 in the Persian Gulf area.
The companies say Burger King Worldwide Inc. and Tim Hortons Inc., based in Ontario, would continue to operate as separate brands but would share corporate services.
The Wall Street Journal first reported the talks and that the companies say there's no assurance a deal will happen.
The new company would have 18,000 restaurants in 100 countries with about $22 billion in sales. The companies say that would make it the world's third-largest fast-food restaurant company.
Burger King's stock surged $4.29, to $31.40 before the market opened Monday. Shares reached an all-time high of $68.95 on Friday.
Shares of Tim Hortons jumped $10.66 to $73.50 before the opening bell. Shares of the Canadian company also hit an all-time high Friday at $68.95.