Activist investors trim positions in Tim Hortons' stock

By Euan Rocha

TORONTO (Reuters) - U.S. hedge funds Scout Capital Management and Highfields Capital disclosed in regulatory filings that they have trimmed their stakes in Tim Hortons (THI.TO) after shares in the Canadian coffee and doughnut chain posted big gains.

The two activist investors had urged Tim Hortons to increase debt levels to fund a share buyback, as well as address concerns about its U.S. expansion, and to name directors to the board who have more financial expertise.

In response, Tim Hortons in August said it was expanding its buyback plan by C$900 million ($860.4 million). It also named two new directors: Sherri Brillon, the chief financial officer at Encana Corporation (ECA.TO), and Thomas Milroy, group head of BMO Capital Markets (BMO.TO).

Shares in Tim Hortons have surged 36 percent over the last 12 months, and 15 percent since April, when Reuters first broke the news about activist interest in the company.

In a regulatory filing on Friday, Scout Capital disclosed it now owns 4.4 percent of Tim Hortons' stock, down from about 5.5 percent in June.

Highfields, in a filing on Thursday, said it now owns 1.6 percent of the company's outstanding shares, down from about 2.6 percent in June.

Tim Hortons reported an 8 percent rise in quarterly profit last week. The company reported that its U.S. same-store sales grew by 3 percent, while its Canadian same-store sales rose 1.7 percent in the third-quarter.

The chain is facing increased competition in Canada from U.S. competitors such as McDonald's Corp (MCD) and Starbucks Corp (SBUX), who have ramped up their offerings and promotions to attract new customers.

($1 = 1.0461 Canadian dollars)

(Reporting by Euan Rocha; Editing by Chizu Nomiyama)