Tim Hortons is aiming to repurchase $900 million in stock to respond to hedge fund demands.
The country’s largest coffee chain made the announcement on Thursday morning declaring an improvement in second-quarter results. Stores open a year or more are returning to positive revenue numbers.
Chief executive officer, Marc Caira, says the coffee giant plans to take full advantage of its strong monetary position through a $900 re-capitalization and expanded share repurchase program.
He says, “Adding leverage to repurchase shares while maintaining our investment grade rating is consistent with our ongoing focus on shareholder value creation, while preserving our strategic flexibility to invest in the business for the long-term benefit of all shareholders.”
Caira is feeling the demands of U.S. investors Scout Management LLC and Highfields Capital Management LP to improve Tim Hortons financial position in the U.S. They have called for a share buyback, dividend increase and a pullback on the pricey U.S. expansion.
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Profits increased 14.5 percent to $123.7 million from $108.1 million. Revenue increased 1.9 percent to $800.1 million.
“We delivered solid profitability in the quarter and progression in same-store sales,” says Caira, “Although the operating environment remains challenging, we are focused on building our market leadership to drive top line growth.”
Tim Hortons is looking for “meaningful improvement in the returns on the capital we have deployed in the U.S. segment, and we have accordingly begun to accelerate our initiative to partner with well-capitalized franchisees in the U.S. as part of our development approach.” Starting in 2014, it expects to reduce capital being deployed in the U.S. segment “as we look to new ways to profitably develop the U.S. market.”
The board approved the $900 million in additional debt that is expected to be in the form of bank debt and/or newly issued bonds.