UPDATE 3-Tim Hortons acts on investor pressures, CEO calls for new strategy

Thu Aug 8, 2013 5:38pm EDT
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* Announces C$900 mln recapitalization and share buyback plan

* Commits to U.S. market, focused on working with well-funded franchisees

* Cuts growth forecast even though quarterly profit tops estimates

* Appoints Encana CFO and BMO Capital Markets CEO to board of directors

By Solarina Ho and Bhaswati Mukhopadhyay

Aug 8 (Reuters) - Tim Hortons Inc, 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 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."   Continued...