Tim Hortons Inc., the biggest donut and coffee chain in Canada, gained the most in almost two years after an activist hedge fund pressured it to scale back a U.S. expansion and spin its real estate into an investment trust.
Highfields Capital Management LP raised its stake in the company to 4 percent, worth about C$346 million ($343 million), the shareholder said in a statement. Highfields, based in Boston, said it met Tim Hortons management in March to address ways to increase shareholder value, including demanding that the company recapitalize.
Highfields is pressuring the company, whose stock is unchanged over the past year, to shake up its U.S. expansion strategy or pull out of that market. It’s also calling for the company to spin off its retail assets into a real estate investment trust, as Canadian grocer Loblaw Cos. plans this year. Tim Hortons stock could top $100 within one and a half years of spinning its real estate into a REIT, Highfields said.
“We believe a unique opportunity exists for Tim Hortons to create material shareholder value by recapitalizing the company and taking advantage of today’s historically low interest rates,” Daniel Farb, managing director of Highfields, said in the letter to Paul House, chief executive officer of Tim Hortons. “When we discussed the opportunity to recapitalize the business or the potential for a REIT, the answers you gave us were not satisfying.”
Tim Hortons, based in Oakville, Ontario, gained 4 percent to C$56.77 at 4:12 p.m. in Toronto, the most since Aug. 11, 2011. It earlier rose 5.9 percent. The company has gained 0.8 percent in the past year.
“We are focused on continuing our track record of creating shareholder value and always welcome constructive dialogue with our shareholders,” Tim Hortons spokesman Scott Bonikowsky said in an email. “We don’t comment on specific conversations.”