Tim Hortons acts on investor pressures, CEO calls for new strategy

Thu Aug 8, 2013 5:52pm EDT
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By Solarina Ho and Bhaswati Mukhopadhyay

(Reuters) - Tim Hortons Inc THI.TO, the Canadian coffee and doughnut chain under shareholder pressure to boost returns, said on Thursday it was expanding its buyback plan by C$900 million ($863.4 million) and its new CEO called the challenging environment the "new reality."

The company, led since July 2 by long-time Nestle SA NESN.VX executive Marc Caira, also announced plans for its business in the United States that are in line with demands of activist investors who want the company to cut back on the investment of its own cash in the United States and turn to well-capitalized franchisees.

Hedge funds Scout Capital Management and Highfields Capital, owners of almost 10 percent of Tim Hortons stock, have urged Tim Hortons to increase debt levels to fund a share buyback, as well as address concerns about the U.S. expansion, and to name directors to the board who have more financial expertise.

"Clearly, we are operating in a very challenging, competitive and volatile environment," Caira told analysts during a conference call. "We need to accept this new reality and effectively compete in it."

He said sales in newer U.S. markets were not generating strong returns, pointing to the need for changes to the financial model and performance there.


The company also named two new directors: Sherri Brillon, chief financial officer at Encana Corporation (ECA.TO: Quote), and Thomas Milroy, chief executive of BMO Capital Markets (BMO.TO: Quote).

Shares of Tim's, which says it sells eight of every 10 cups of coffee sold in Canada, have risen about 10 percent since the hedge funds went public with their concerns three months ago. Shares rose 0.7 percent to close at C$59.90 on Thursday.   Continued...

A pedestrian walks past a Tim Hortons restaurant in Toronto October 26, 2007. REUTERS/Mark Blinch