The coffee-shop chain where millions of Canadians start their day has found itself at the centre of a legal challenge in the United States and the subject of some bitter grumbling in Canada. This comes the day before stockholders of its parent company were to get a major dividend of shares.

Executives of Hortons and its American parent, Wendy's International, were in court yesterday opposing a last minute effort by debtholders to stop the distribution of Tim's shares to Wendy's stockholders. A decision on the motion had not been issued by press time.

The Bay Street storm had some investors muttering about a move to include Hortons stock in seven of the prestigious Standard & Poor's-Toronto Stock Exchange indexes. Such listings are usually reserved for Canadian companies and Hortons is incorporated in the U.S.

Yesterday, Wendy's was given the nod to go ahead with a planned spinoff of Tim Hortons. Wendy's planned to distribute the 87 per cent of Hortons shares it holds to existing Wendy's shareholders at the rate 1.3542759 Hortons shares for every Wendy's share they own. Debtholders argued that stripped away value they were counting on to back their debts, but a U.S. judge rejected the claim.

Wendy's holds 160 million Hortons shares. At yesterday's closing prices, that's a transfer of more than $4.6 billion Cdn and $4.2 billion US to shareholders.

"Hortons is the most profitable unit and the fastest-growing and it is going to have a detrimental effect on Wendy's if it is spun off," the group's lawyer, Glenn Kurtz, told the Canadian Press from New York.

Included as plaintiffs in the suit are Aflac Inc., Massachusetts Mutual Life Insurance Co., Swiss Re, Millennium Partners and Wellington Trust Co.

The noteholders' lawsuit charges, "The proposed transfer would strip Wendy's of its 'crown jewel' and result in a substantial and permanent deterioration of Wendy's credit which was downgraded to junk status when Wendy's announced the spinoff transaction."

The transfer is to take effect at the close of trading today. In a news release, Wendy's said it "believes this action is without merit and plans to vigorously defend its position."

Sherman Cheung, of McMaster University's business school, expressed sympathy for the noteholders' position, noting "I think there's no question this plan has a potential adverse effect on the credit of Wendy's."

John Kinsey, of Toronto-based Caldwell Securities, agreed the share transfer "certainly reduces the assets backing the notes" of Wendy's creditors, but understood the move as a response to pressure to "create value for shareholders" in the face of Wendy's declining sales and profits.

While Wall Street movers fought over the value of Wendy's, Bay Street denizens grumbled to a Toronto newspaper about the decision to include Hortons in seven S&P-TSX indexes.

Cheung explained such indexes serve as a proxy measure of Canada's economic performance, and dismissed the grumbling, noting the indexes also include companies that, while headquartered in Canada, derive the majority of their income outside the country.

Yesterday's events had only a marginal effect on Hortons and Wendy's shares. In Toronto, Hortons gained 30 cents to close at $29.28. On The Big Board, it gained 15 cents to close at $26.35. Wendy's gained 95 cents in New York to closed at $66.57.

This is cache, read story here