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(B)(N) THI Tim Hortons Incorporated

April 30, 2013

Drama. Highfields Capital is a Boston-based hedge fund, founded in 1998, which now has about $11 billion of other peoples money under its management. And they want more cream in their coffee and sugar in their tea, served up to them by Tim Hortons in the back office, boardroom, or takeout window, wherever (Reuters, April 30, 2013, Tim Hortons investor agitates for buybacks, new strategy). Highfields Capital brings nearly four months of experience to the business, a fine taste, and a middling investment of about $110 million for a 1.6% stake in the company, acquired as late as December last year at $50 per share, and wants the $8 billion company to take its considered advice and petition, and borrow $3.4 billion on the corporate account, and buy them back, and 50 million more, in a gesture of goodwill to all the shareholders, at $59 per share (ibid, Reuters). Brilliant! What an idea! Instant coffee for everyone!

In contrast, Tim Hortons has been in the Perpetual Bond™ most recently since $30 to $35 in 2010, almost three years ago, and is in the Perpetual Bond™ now, despite difficult expansion in the U.S. and the nearly saturated Canadian market. Our estimate of the downside risk due to volatility is minus ($3.50) per share and a stop/loss at $50 could put it below the current risk price of $50 and rising (please see Exhibit 1 below). The dividend is $0.26 per share per quarter for a total payout of $160 million per year to its shareholders and a current yield of 1.9%.

We’re inclined to buy the July put at $54 for $1.30 per share today and sell the offsetting call at $58 for $0.30 – net $1 a share from our profits or about the cost of doughnut – and see how things work out with a guaranteed price of no less than $54 and no more than $58 for the next several months, while we wait for another balance sheet and more information. That would be enough sugar for us.

Exhibit 1: (B)(N) THI Tim Hortons Incorporated – Risk Price Chart

(B)(N) THI Tim Hortons Incorporated - April 2013

(B)(N) THI Tim Hortons Incorporated – April 2013

Tim Hortons Incorporated, of Oakville, Ontario, develops and franchises quick-service restaurants that serve food, including coffee, other hot and cold beverages, baked goods, sandwiches, soups and other foods products to legions of students, senior citizens and retired folks, travelers, baby-sitters, and workers on their way or on their break.

(Please Click on the Chart to make it larger if required.)

We have to admit that Starbucks has been growing much faster, but the U.S. is at least ten times as large as the Canadian market, so maybe Tim Hortons has room to grow. Starbucks is now a $45 billion dollar company that has been in the Perpetual Bond™ since $10 in 2009 and is currently trading at $60, much closer to what the Highfields Capital folks would like to have for Tim Hortons.

The dividend is $0.21 per share per quarter for a $630 million per year payout to its shareholders and a current yield of 1.4%. Our estimate of the downside risk due to volatility in minus ($4) per share, which we can afford, but we could also look at a “collar” if they don’t plan to raise the dividend this year. Perhaps we should write them and ask for a sweeter deal there, too, so that we don’t have so much trouble making money the old-fashioned way, by patiently earning it; or, Highfields Capital could have bought a cup of coffee and a “box” of the dozen companies of the Dow Transports that we served up in December, and done even better. Please see our recent Post, The Dow Transports, March, 2013.

Exhibit 2: (B)(N) Starbucks Corporation – Risk Price Chart

(B)(N) SBUX Starbucks Corporation - April 2013

(B)(N) SBUX Starbucks Corporation – April 2013

Starbucks Corporation purchases and roasts whole bean coffees and sells them, along with fresh, brewed coffees, Italian-style espresso beverages, cold blended beverages, a selection of teas and coffee-related accessories.

(Please Click on the Chart to make it larger.)

The calculated Risk Price (SF) is a provably effective estimate of the “price of risk” which is “the least stock price at which the company is likeable” (Goetze 2009) and “likeability” is determined by the demonstrated factors of “risk aversion” – we want to keep our money and obtain a hopeful return above the rate of inflation.

Stock prices that are less than the price of risk are “bargain prices” but with the risk attached that the company might never get a higher price other than that due to ambient volatility or “surprise”. On the other hand, investors who are willing to pay the “full price” above the price of risk, and buy and hold the stock at those prices, must also be confident, and have reason to believe, that the company will produce those values, absent new information.

Please see our Posts, The Price of Risk, August 2012 and The Nash Equilibrium & Its Stock Price, October 2012, for more information on the theory, and for more of our view on the current markets, The Wall Street Put, April 2013, and earlier Posts such as The Dow Transports, March 2013, or The Risk Adjusted Dow, March 2013, or The Canada Pension Bond, February 2013.


We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
“Alpha-smart with 100% Capital Safety and 100% Liquidity”
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to


Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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