U.S. hedge fund increases its Tim Hortons ownership stake to 5.5%
A server pours a cup of coffee at the Tim Hortons' AGM in Toronto on Thursday, May 10, 2012. (Chris Young / THE CANADIAN PRESS)
Published Tuesday, June 18, 2013 2:00PM EDT
TORONTO -- A New-York based hedge fund is putting pressure on Tim Hortons Inc. (TSX:THI) to make changes to boost profitability just months after the restaurant chain saw similar requests from another U.S. investor.
Scout Capital Management has upped its ownership stake in the Canadian restaurant chain to 5.5 per cent, according to documents filed Monday with the U.S. Securities and Exchange Commission.
The hedge fund had a 1.48 per cent stake in the coffee and doughnut chain at the end of March.
Scout says it has engaged in discussions with senior management at Tim Hortons about the chain's capital structure and expenditures, the timing and size of its share repurchases, management compensation metrics and technology investments.
The company says it expects these discussions to continue.
The news comes after reports at the end of April that U.S. hedge fund Highfields Capital Management was pushing for changes at Tim Hortons.
Highfields wanted Tim Hortons to borrow $3.4 billion to buy back more than a third of its stock, create a real estate trust for its real estate assets and spin off or sell its distribution business.
However, the restaurant chain said it wouldn't be spinning off its real estate holdings because doing so would not create significant value for the company.
Tim Hortons owns about 20 per cent of its more than 3,400 restaurant locations and kiosks, though most are leased. It also owns its corporate headquarters and distribution centres.
Meanwhile, Tim Hortons is preparing for incoming leader Marc Caira, a longtime senior executive at Nestle, who will officially take over from interim CEO Paul House on July 2.
Tim Hortons reported weaker first-quarter profits last month, with net income attributable to stockholders down 2.9 per cent to $86.2 million, from $88.8 million in the same 2012 period.
The company, which has faced an onslaught of competition from the likes of coffee chains like Starbucks and fast food restaurants like McDonald's, said that overall traffic at its locations was flat.