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Tim Hortons Surges on Earnings, Sale of Joint Venture

Aug. 12 (Bloomberg) -- Tim Hortons Inc., Canada’s largest fast-food chain, rose the most in a year after reporting second-quarter profit that topped analysts’ estimates.

The company, known for its coffee and donuts, also said it is selling its 50 percent stake in Maidstone Bakeries to joint venture partner Aryzta AG for C$475 million ($454.2 million) in cash. Tim Hortons said in a statement it has a net investment of about C$75 million in the business.

Chief Executive Officer Donald Schroeder said Aryzta wished to take complete control of Maidstone and Tim Hortons agreed after evaluating tax implications. The two companies signed a joint venture agreement in 2002.

“The business has greater economic value to our partner,” Schroeder said in a telephone interview. “They are involved in North America and their ability to take the product into the grocery line is significantly different than the opportunity available to us. We thought the price was fair.”

Net income rose 21 percent to C$94.1 million, or C54 cents a share, from C$77.8 million, or C43 cents, a year ago. The average estimate of 10 analysts compiled by Bloomberg was 51 cents. Revenue climbed 5.7 percent to C$639.9 million from C$605.5 million, also beating the average estimate of C$608.8 million.

Tim Hortons, based in Oakville, Ontario, rose C$2.29, or 6.5 percent, to C$37.73 at 4 p.m. in Toronto Stock Exchange composite trading, its biggest intraday gain since Aug. 6, 2009. The stock has gained 17 percent this year.

Possible Share Buyback

Proceeds from the sale will go to “returning value to shareholders,” including a possible share buyback or increasing the company’s dividend, Chief Financial Officer Cynthia Devine said in a telephone interview. Tim Hortons last announced a dividend increase on Feb. 25, up 30 percent to 13 cents a share from 10 cents.

Maidstone, a 400,000 square-foot bakery based in Brantford, Ontario, exclusively serves Tim Hortons under a contract that extends through 2016, which the Canadian chain can extend to 2017, Zurich-based Aryzta said in a statement.

The bakery is currently operating at 55 percent capacity. Aryzta said it will now be able to market Maidstone to all its customers, including California-based Fresh Start Bakeries it purchased for $900 million in June. BMO Capital advised Aryzta on the Maidstone purchase, the baker said.

Tim Hortons’ same-store sales rose 6.4 percent in Canada and 3.1 percent in the U.S. The company had 3,627 restaurants, most in Canada, as of July 4.

To contact the reporter on this story: Alex Sherman in New York at asherman6@bloomberg.net.

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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