UPDATE 2-Tim Hortons CEO cautious on higher debt, share buyback

Thu May 9, 2013 5:40pm EDT
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By Solarina Ho

TORONTO May 9 (Reuters) - Tim Hortons Inc will likely raise its debt levels and buy back shares, but Canada's more conservative borrowing environment makes it improbable they will be done to the extent an activist investor in the company wants, the chief executive of the Canadian coffee-and-doughnut chain said on Thursday.

Hedge fund Highfields Capital, which owns about 4 percent of Tim Hortons shares, wants Tim Hortons to buy back more than a third of its shares to boost shareholder returns, as well as name new board members with more financial experience.

"We are a very healthy company and we want to stay a very healthy company," outgoing CEO Paul House told Reuters after the company's annual shareholders meeting in Toronto.

"Anything we do is going to be a long-term thing. We have never looked at anything short term," said House, who is set to hand over the company's reins to Nestle veteran Marc Caira on July 2. "Our shareholders that have been with us a long time, they hold our stock because they have confidence that we are very conservative, long-term thinkers."

According to documents viewed by Reuters, Highfields wants Tim Hortons to raise about $3.4 billion in debt and buy back roughly 37 percent of its outstanding shares.

House said Tim Hortons board has not yet decided on the debt levels it is comfortable with, but it remains focused on maintaining an investment grade rating and it would not go to the levels suggested by Highfields.

"I don't think that we'd leverage up to that point, no, not at all," he said.   Continued...