Sunny Freeman reports in The Canadian Press that Tim Hortons announced Thursday morning it is selling its 50 per cent interest in Maidstone Bakeries of Brantford, Ont. to joint venture partner Aryzta AG for $475 million after the Swiss company invoked a contract provision forcing Tims to buy or sell the stake.
The iconic fast food company, headquartered in Oakville, Ont., will return the $475 million that it will receive from the sale to shareholders, though the company is not yet sure how, its CFO Cynthia Devine said in an interview Thursday.
“We really just finalized it with our partners yesterday… and we’ll review various alternatives to return value to our shareholders,” she said.
President and chief executive Don Schroeder said the decision to sell the stake came after realizing the bakery was of “much greater economic value” to Aryzta, which provides specialty baked goods to restaurants around the world.
“Because of the international nature of this relationship, the value that we put on the facility was greatly different than what our partner Aryzta was able to put on it,” he said.
Brian Yarbrough, a retail analyst at Edward Jones said the company will likely do a share buyback, raise its general dividend, or issue a special dividend.
“That’s a pretty big announcement because if they buy back a bunch of stock that’s accretive, if they pay a big one time shareholder dividend, that’s nice for shareholders,” he said.
Tim Hortons shares rose steadily by seven per cent or $2.48 to $37.92 Thursday on the Toronto Stock Exchange. That was the highest the stock has traded at since January 2008.
Devine noted that the company is flush with cash and doesn’t need to use money from the Maidstone sale to fund planned international expansion.
The company has said it would publicly announce its next steps in the second half of this year after updating its board of directors on the strategy in June. Those discussions will continue at a meeting in November, Schroeder said.
“Because the playing field is littered with companies that rushed in and did the wrong thing, we are taking our time we’re doing the appropriate research, so that when we finally make a decision in any regard it will be the right one,” he said.
Schroeder noted that Tims still has supply agreements for donoughts and Timbits to be produced at the Brantford, Ont., bakery until at least early 2016.
“Given the fact that we have an extremely good supply agreement that was negotiated a number of years ago that clearly provides appropriate protection for our store owners in terms of pricing and source of quality supply,” Schroeder said.
He added that nothing will change operationally at the facility, where employees have been “virtually part of the Tim Hortons family,” since the facility opened in 2002.
“We see no reason why we won’t be able to work with them in the same way for years to come.”
Maidstone currently operates at only 55 per cent of its capacity as Tim Hortons is its sole customer. But Aryzta said Thursday it is looking to expand capacity at the bakery and pursue agreements with other restaurants.
“Arytza will be in a position to market Maidstone’s spare capacity across all its customer channels …This increased capacity utilization will unlock value for Aryzta from its investments in Maidstone,” it said in a statement.
Read More at: The Canadian Press