Scout Tells Tim Hortons to Boost Debt, Limit Expansion

Tim Hortons Inc. shareholder Scout Capital Management LLC demanded in an open letter that the Canadian coffee and doughnut chain make changes to its corporate strategy, including raising debt for share repurchases.

Among its other recommendations, Scout wants Tim Hortons to curtail the use of cash flow to fund its U.S. expansion, the closely held New York-based investment company said today in a letter included in a U.S. filing. Scout, which controls a 5.5 percent stake in the Oakville, Ontario-based company, said in the letter it wants to improve Tim Hortons’ performance compared with its restaurant peer group.

“By all rights, the company’s brand positioning should have led to superior shareholder returns and performance over time,” Scout said in the letter. “Unfortunately, this has not been the case.”

Alexandra Cygal, a Tim Hortons spokeswoman, didn’t respond to a voicemail seeking comment.

Scout is at least the second activist investor group to advise the company to increase debt levels and reconsider its U.S. expansion strategy. Boston-based Highfields Capital Management LP increased its stake in Tim Hortons to 4 percent this year, and filed a similar open letter to the company’s board.

Tim Hortons rose 3.2 percent to C$56.29 at 4 p.m. in Toronto. The shares have gained 15 percent this year compared with a 3.4 percent drop in the Standard & Poor’s/TSX Composite Index.

To contact the reporter on this story: Lauren S Murphy in Toronto at

To contact the editor responsible for this story: David Scanlan at

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