By Paul Vieira 

The Canadian government approved Burger King Worldwide Inc.'s $11 billion deal to buy local coffee-and-doughnut retailer Tim Hortons Inc. on Thursday, clearing another hurdle toward the creation of the world's third-largest fast-food restaurant chain.

The deal, which is partly financed by Warren Buffett, sparked fierce debate in the U.S. as some lawmakers accused Burger King of buying the Canadian firm to relocate headquarters abroad for tax purposes. But in Canada, some consumers bemoaned what they saw as a beloved national brand falling into foreign hands.

Burger King executives have said the transaction wasn't driven by taxes. The Canadian government said the global headquarters of the combined company, with about $23 billion in system sales across more than 18,000 restaurants, would be based in Oakville, outside of Toronto.

That location of a headquarters was among several conditions Burger King agreed to in exchange for approval, Canadian Industry Minister James Moore said in a statement. Burger King, based in Miami but owned by Brazilian-U.S. investment firm 3G Capital, also agreed to maintain employment levels at Tim Hortons' Canadian outlets, and expand the coffee chain's global presence at a "significantly greater" pace than previously envisaged.

Burger King officials also pledged to manage Tim Hortons as a distinct brand, with no co-branding at any North American locations, and maintain the franchisee rent and royalty structure at current levels for a five-year period.

"Our government is pleased to see companies like Burger King investing in Canada's economy and looking to benefit from our low taxes and open markets," said Mr. Moore, part of whose job is to enforce the country's foreign-investment laws.

Under Canadian law, officials have to review of foreign-led investments and acquisitions of local based assets to see if they provide a so-called net benefit to the country's economy.

Conservative government officials had signaled approval of the transaction was likely in the offing, as it lauded Burger King's decision to set up headquarters in suburban Toronto as proof that its drive to lower corporate tax rates was attracting investment.

Still, Canada has rejected several foreign acquisitions in recent years. In 2008, it rejected U.S. aerospace and defense firm Alliant Techsystems Inc.'s takeover of MacDonald Dettwiler & Associates Ltd. Two years later, the country's Conservative government blocked BHP Billiton's multibillion-dollar hostile takeover of Potash Corp. of Saskatchewan.

Tim Hortons stores are ubiquitous in Canada, and its advertising plays on its roots in that country and its favorite pastimes, such as hockey.

Mr. Buffett's Berkshire Hathaway Inc. provided $3 billion in financing through preferred shares that will carry a 9% coupon. Berkshire Hathaway, which previously joined with 3G to buy H.J. Heinz & Co. in 2013, won't be involved in the management of the Burger King-Tim Hortons company.

Write to Paul Vieira at paul.vieira@wsj.com

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