Skip to main content

The Globe and Mail

Tim Hortons pressured by another U.S. hedge fund

Last month, it was revealed that U.S. hedge fund, Highfields Capital Management LP, met with Tim Hortons’ management in March.


Tim Hortons Inc. – already dealing with slumping sales that it blames on the slow economy and $1 drinks at competitors – faces new pressure from a second U.S. hedge fund to make sweeping changes to its strategy.

New York-based hedge fund Scout Capital Management LLC disclosed in a recent U.S. regulatory filing that it had increased its holdings in the Oakville, Ont.-based coffee chain to 5.5 per cent or 8.4 million shares, making it the second-largest shareholder, according to the latest filings.

Scout Capital, which declined to comment on Tuesday, said in its June 5 filing with the U.S. Securities and Exchange Commission that it has "engaged and will continue to engage in discussions with senior management" at Tim Hortons about the chain's "optimal capital structure, capital expenditures, timing and magnitude of share purchases, management compensation metrics, and technology investments, among other matters."

Story continues below advertisement

It's the second such move from a U.S. hedge fund in recent months. And it follows increased shareholder activism in Canada generally, as boards face a growing number of proxy battles such as the one that ripped through Canadian Pacific Railway Co. last year.

Last month, it was revealed that another U.S. hedge fund, Highfields Capital Management LP, which held 4 per cent of Tim Hortons shares, met with management in March. Highfields also sent a letter to Tim Hortons chairman Paul House, saying the company and its board "lack both an understanding and a sense of urgency" about its expensive U.S expansion plans.

Highfields also said the company should recapitalize the company by borrowing money to buy back shares and that it should spin off its real estate holdings into a real estate investment trust. The hedge fund added that Tim Hortons would benefit from new board members with more financial expertise.

The doughnut chain has said it would likely boost its debt to buy back some shares, but not at a level that would likely satisfy its critics. A new chief executive officer, Marc Caira, the former head of global food services supplier Nestlé Professional, is to take over on July 2, ending two years that saw the company operate without a permanent CEO.

Stock markets reacted positively on Tuesday to word that Scout Capital, which also has offices in Palo Alto, Calif., and a portfolio of $7.8-billion (U.S.), had increased its stake. Tim Hortons shares were up more than 4 per cent to $56.05 (Canadian) a share on the Toronto Stock Exchange.

According to Reuters, Merrill Lynch analyst Joseph Buckley told investors in a note that he sees the "active consideration of change favourably," and believes that "more active balance sheet management" as suggested by the hedge funds could help close the share price gap between Tim Hortons and other franchised businesses.

Tim Hortons said last month that its first-quarter sales at outlets open a year or more fell 0.3 per cent in Canada and 0.5 per cent in the United States – the chain's first Canadian same-store sales decline since it was spun off as a public company in 2006.

Story continues below advertisement

The company declined to comment in any detail on Scout Capital's move.

"We don't discuss conversations with individual shareholders but I can provide the perspective that we are focused on continuing our track record of creating shareholder value and we welcome feedback from all of our shareholders," Scott Bonikowsky, Tim Hortons vice-president of corporate affairs, said in an e-mail.

Report an error Editorial code of conduct Licensing Options
As of December 20, 2017, we have temporarily removed commenting from our articles. We hope to have this resolved by the end of January 2018. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to