TORONTO Tim Hortons Inc THI.TO is likely to raise its debt levels and buy back shares but not to the extent that an activist investor is pushing for, Paul House, chief executive of the Canadian coffee-and-doughnut chain, said on Thursday.
Hedge fund Highfields Capital, which owns about 4 percent of Tim Hortons shares, has been pressuring the company to boost shareholder returns and appoint new board members with more financial experience.
"We are a very healthy company and we want to stay a very healthy company," House said in an interview with Reuters after the company's annual shareholders meeting in Toronto on Thursday.
"Anything we do is going to be a long-term thing. We have never looked at anything short term," said House, who is set to step down as CEO in July. "Our shareholders that have been with us a long time, they hold our stock because they have confidence that we are very conservative, long-term thinkers."
According to documents viewed by Reuters, Highfields wants Tim Hortons to raise about $3.4 billion in debt and buy back roughly 37 percent of its outstanding shares.
Tim Hortons shares closed down 2.4 percent at C$55.75 on the Toronto Stock Exchange on Thursday.
House, who is set to hand over the reins to Nestle NESN.VX veteran Marc Caira on July 2, said Tim Hortons board has not yet decided on the debt levels it is comfortable with, but that it remains focused on maintaining an investment grade rating and it would not go to the levels suggested by Highfields.
"I don't think that we'd leverage up to that point, no, not at all," he said.
"(Canadian) companies don't leverage up to the extent that a lot of companies do in other parts of the world, that's for sure," House added. "I think you've got to be very, very careful in these unsettling times as to what you do from a leverage point of view."
Tim Hortons boasts that it sells eight of every 10 cups of coffee sold in Canada, but analysts now question if the brand, as much a Canadian symbol as hockey and the Maple Leaf flag, has room for further growth at home.
With some 3,400 company-owned and franchised stores in Canada, it faces a tough fight for market share as rivals such as McDonald's (MDD.N) and Starbucks (SBUX.O) step up the competition.
House said Tim Hortons is looking at people with financial expertise as it seeks to fill two vacant spots on its board, as has been demanded by Highfields. House said the board already has financial expertise, but that the death of board member Ronald Osborne in April has left a hole in that area.
"While we do not question the operating backgrounds of many of the current board members, we feel the company could benefit from more financial expertise," Highfields said in a letter to Tim Hortons' board. "We believe it imperative to upgrade the board with new members who could help develop and implement a more appropriate capital allocation strategy."
(Reporting by Solarina Ho; Writing by Euan Rocha; Editing by Peter Galloway)