March 23 (Bloomberg) -- Tim Hortons Inc., the No. 1 Canadian doughnut chain, raised C$783 million ($671.7 million) in the biggest North American initial public offering in nine months.

Tim Hortons, owned by Wendy's International Inc., sold 29 million shares at C$27 each in Canada and $23.16 in the U.S., according to a statement today. The company raised the target price earlier this week to as much as $24 a share from $20. The stock will trade on the New York and Toronto exchanges as THI starting tomorrow.

Wendy's, the third-largest U.S. hamburger chain, sold a stake in Tim Hortons under pressure from investors, including hedge fund manager William Ackman, who said the stock is undervalued. Tim Hortons spurred demand with plans to add more than 1,000 stores in Canada and another 200 in the U.S. after increasing revenue an average of 13 percent in the last five years.

``The demand is phenomenal,'' said Greg Eckel, who helps manage about $860 million at Morgan Meighen & Associates in Toronto. Eckel said he will be cautious about buying after the shares begin trading because demand will push up the price.

The sale values Tim Hortons at about $4.4 billion, or 10 times the price Wendy's paid for the firm a decade ago. Wendy's will retain an 83 percent stake in Tim Hortons after the IPO, and will spin off the rest to Wendy's shareholders by year end.

The Tim Hortons sale was managed by Goldman Sachs Group Inc., RBC Capital Markets and nine other banks. About 60 percent of the shares were sold to Canadian investors.

Dominant Share

Tim Hortons, based in Oakville, Ontario, has 2,597 restaurants in Canada and 288 in the U.S. that sell coffee, donuts, sandwiches and soups.

The chain has 76 percent of the Canadian market for coffee and baked goods, based on customers served, according to Port Washington, New York-based independent market research firm NPD Group. Tim Hortons was named the best-managed brand in 2004 and 2005 by Canadian Business magazine.

``Tim's holds a 22.6 percent share of the $14 billion fast food market in Canada,'' Prudential Equity Group analysts Larry Miller and Robert Sanders wrote in a report issued March 21. ``Tim's also holds a commanding share of the Canadian coffee segment at 62 percent, well ahead of number two player Starbucks at 7 percent.''

In addition to its dominant market share in Canada, Tim Hortons has ``iconic brand status in Canada,'' Miller and Sanders wrote. ``Hockey is core to Canadian culture and Tim Hortons has strong ties to the sport.''

U.S. Strategy

The chain was started in 1964 by Ron Joyce and Tim Horton, a Hall of Fame hockey player who spent 22 seasons in the National Hockey League playing for the Toronto Maple Leafs and Buffalo Sabres. Horton opened his first restaurant in Hamilton, Ontario, to make money in the off-season.

Horton died in 1974 in a car crash. Joyce, a former Hamilton police officer, took over the business and expanded the chain to small towns across Canada.

The company's U.S. outlets are concentrated in 10 states, mostly in the Northeast including Buffalo, New York, and Detroit. The company plans to increase its store count to more than 4,000 in Canada by 2013 and to 500 in the U.S. by the end of 2008.

Sales Gains

Sales rose 11 percent last year to C$1.48 billion. Growth in same-store sales has averaged 7 percent in Canada during the past decade and 10 percent in the U.S.

Tim Hortons is run by Chief Executive Officer Paul House. House, 62, has been with the company since 1985, starting his career as vice president of marketing. House, who sits on the board of Wendy's, was named chief operating officer in 1993 and then president and chief executive in 1995.

Wendy's in 1996 paid about $450 million for Tim Hortons, which generates 31 percent of the hamburger chain's sales. That represents 58 percent of profit before interest and taxes.

The banks handling the sale will share fees of about 6 percent, or about $46 million if the IPO raises $772 million. Bankers managing the IPO may sell another 4.35 million shares to meet demand, increasing the total shares sold to 33.5 million.

IPO underwriting fees averaged 6.2 percent in the U.S. last year, and were 5.8 percent in Canada, according to data compiled by Bloomberg.

Valuation

The Canadian doughnut chain trades at about 28 times 2005 earnings of 96 cents a share, based on a share price of C$27, according to figures in the sale documents. That compares with a price to earnings ratio of 55 times for Starbucks Corp., the biggest U.S. coffee chain, and 14 times for Krispy Kreme Doughnuts Inc.

Tim Hortons raised the price range for its IPO by 20 percent on March 20 because of rising demand from investors. The offer price was raised to between $22 and $24 a share from $18 to $20.

Shares of Dublin, Ohio-based Wendy's rose 54 cents to $65.01 at 4:18 p.m. in New York Stock Exchange composite trading. They've risen 67 percent in the past 12 months.

CNBC host Jim Cramer recommended Tim Hortons shares on his ``Mad Money'' television show on March 20. He told viewers not to hold the stock for too long because ``this is not a growth story.'' The shares may hit $28, he said.

To contact the reporter on this story: Josh Fineman in New York at jfineman@bloomberg.net; David Scanlan in Toronto at dscanlan@bloomberg.net.

Last Updated: March 23, 2006 19:08 EST