Tim Hortons Inc. is selling its 50-per-cent interest in Maidstone Bakeries to its joint venture partner Aryzta AG for nearly half a billion dollars after the Swiss company invoked a provision forcing Tims to buy or sell its entire stake.
"Because of the international nature of this relationship, the value that we put on the facility was greatly different than what our partner Aryzta was able to put on it," said president and chief executive officer Don Schroeder.
"We made the decision that clearly this was of much greater economic value to our partner than to us and on that basis we made the decision to sell," Mr. Schroeder said in an interview Thursday.
Mr. Schroeder noted that Tims still has supply agreements for doughnuts and Timbits to be produced at the Brantford, Ont., facility until at least early 2016.
The agreement also provides protection for pricing and quality of supply.
But the company is unsure how it will use the $475-million that it will receive from the sale, said its CFO Cynthia Devine.
"We really just finalized it with our partners yesterday ... and we'll review various alternatives to return value to our shareholders," she said.
Meanwhile, Tim Hortons delivered what it says is the company's best three-month same-store sales performance in Canada for several quarters in the second quarter of 2010.
The coffee, doughnut and snack chain reported a 21-per-cent rise in second-quarter profit to $94.1-million, up from $77.8-million a year ago.
On a per-share basis, diluted earnings rose to 54 cents from 43 cents.
Analysts expected the company to report profit of $88.24-million, or 50.5 cents per share on revenue of $598.94-million, according to Thompson-Reuters.
Tim Hortons said revenue increased 5.7 per cent to $639.9-million in the quarter.
Canadian same-store sales - a key industry barometer - were up 6.4 per cent in the quarter compared to last year, while growth was somewhat slower in the U.S., up 3.1 per cent.
"We had a lot of good things happening in the quarter - the relaunch of our sandwich program with a new bread was a great addition, the cafe mocha, our emphasis on what cold beverages mean to our system," Mr. Schroeder said.
He added that the strength of same-store sales in the U.S. was also gratifying given the challenging economic conditions.
"There's no question that the U.S. recovery, it is still a different ball game ... compared to Canada," Mr. Schroeder said.
"To post positive same-store sales growth (in the U.S.) is certainly the envy of other people within our industry."
The chain has about 500 stores in the U.S. and has announced plans to open an additional 300 stores there by 2013.
The Canadian coffee, doughnut and sandwich chain also has plans for further U.S. growth following a high-profile expansion in New York City last summer, where it opened 12 new locations.