updated 7/29/2005 11:09:02 AM ET 2005-07-29T15:09:02

Wendy’s International Inc. said on Friday that it plans to sell a portion of its Tim Hortons business, weeks after a major shareholder sent a letter urging a spin-off of the profitable doughnut and coffee chain.

The third-largest burger chain also said it plans to convert a portion of its company-owned burger restaurants into franchises and sell land it rents to franchisees.

Shares of Wendy’s surged on the news.

The company hopes to complete an initial public offering of 15 percent to 18 percent of Tim Hortons by the end of March. Wendy’s Chairman and CEO Jack Schuessler said the company eventually plans to spin off the chain entirely and could do so within two years.

In a conference call Friday, Schuessler acknowledged the restaurant chains’ different trajectories; Tim Hortons’ profits and sales have grown consistently over the past few years while Wendy’s sales have been sluggish in the last year.

“We really believe the two brands are moving apart. I think Tim’s is growing faster; Wendy’s is maturing. Tim’s has entered into the lunch space, Wendy’s is entering in the cold sandwich space. At some point we believe Wendy’s will have breakfast,” he said.

“At some point we could see Wendy’s and Tim’s become competitors as Tim’s comes into the U.S.,” he said. “We believe separating the two companies are the best actions for both.”

Earlier this month, shareholder Pershing Square Capital Management LP sent a letter to Wendy’s executives urging the company to spin off Tim’s and make nearly all of its corporate-owned restaurants franchises to increase the value of the company’s stock.

Pershing, which has a 1 percent stake in the company and options to buy another 9 percent of the company’s stock, said the company could focus better on the chains’ performance if they were separated and increasing the proportion of franchises would give Wendy’s more room for product development and improved franchise oversight.

“I think management did an excellent job,” Pershing managing partner William Ackman told Wendy’s executives during the conference call. “We’re excited to be shareholders.”

Schuessler said the company asked the investment firm Goldman Sachs to analyze its business after analysts at a February conference call asked the company whether it was going to spin off Tim’s.

“It’s just not about a financial plan; it’s about how you run a business and preserving the business models that make both brands successful,” he said.

Under the plan announced Friday, Wendy’s also plans to sell some of its company owned burger restaurants to franchisees. Company stores currently make up 22 percent of its 5,935 U.S. locations; Wendy’s plans to reduce that figure to 15 percent to 18 percent.

The chain also plans to close between 40 and 60 underperforming restaurants and sell the 217 parcels of land it currently leases to franchisees. Schuessler said selling the land would take place in the next year, adding that franchisees prefer to own the land where their restaurants stand.

The company, which has developed about 70 new stores in each of the past four years, plans to slow that rate to about 30 to 40 per year.

With an infusion of cash from the initiative, the company’s board has approved a buyback up to an additional $1 billion more in stock, bringing the total authorized to $1.22 billion.

The board also approved a 25 percent increase to the company’s dividend to 68 cents. The dividend is payable Nov. 21.

Wendy’s also plans to use existing cash to pay off about $100 million in debt due in December.

The announcement comes a day after Wendy’s earnings beat Wall Street estimates, but the company trimmed its full-year earnings per share goal to a range of $2.20 to $2.26. The company’s previous goal had been a range of $2.29 to $2.35.

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