China-backed group 'has craving for Yum! China'

Yum! China runs over 7,100 KFC and Pizza Hut eateries across the nation. A majority purchase by the CIC consortium would give a domestic entity control of a leading fast-food chain in the Chinese market for the first time.
Yum! China runs over 7,100 KFC and Pizza Hut eateries across the nation. A majority purchase by the CIC consortium would give a domestic entity control of a leading fast-food chain in the Chinese market for the first time.PHOTO: REUTERS

HONG KONG • China wants to get control of the most popular fast-food chain in the country.

A consortium backed by sovereign fund China Investment Corp (CIC) has expressed interest in buying a majority stake in Yum! Brands' China business, which runs more than 7,100 KFC and Pizza Hut eateries across the nation, people with knowledge of the matter said.

The investor group, which also includes KKR & Co and Baring Private Equity Asia, is conducting due diligence on the unit. A deal could value Yum! China at US$7 billion to US$8 billion (S$9.5 billion to S$10.7 billion), sources said.

It is also said that Temasek Holdings and Chinese investment firm Primavera Capital are separately vying for stakes in Yum! China.

An investment would provide Kentucky-based Yum with cash that could be used to fund a dividend and its planned share buyback, and reduce exposure to a business with shrinking market share, one of the sources said.

The China-backed investor group is interested in buying as much as 100 per cent of Yum! China, while Yum is considering all options, though it may still decide to pursue the sale of a minority stake or proceed with a previously announced tax-free spin-off of the business, sources said.

A majority purchase by the CIC consortium would give a domestic entity control of a leading fast-food chain in the Chinese market for the first time.

"It's a matter of this being the type of asset that comes up for sale very rarely and the Chinese have been looking all over the world for good buys," Shanghai-based analyst Ben Cavender at China Market Research Group said yesterday.

Beijing-based private equity firm Hopu Investment Management, led by dealmaker Fang Fenglei, was also considering a potential investment in Yum! China, though deliberations are at an early stage.

A representative for Yum said in an e-mailed statement the company continues to make "good progress" since it announced the separation of its China business, declining to comment further. CIC did not immediately reply to an e-mail seeking comment, while Baring and KKR declined to comment.

Yum has lately seen its dominance in the world's second-largest economy wane, as its market share in the country has fallen from 39 per cent in 2010, Euromonitor data show. The company plans to add 600 outlets this year to its more than 7,100 restaurants across China, according to its website.

Yum bowed to activist-investor pressure in October and agreed to separate its China business from its operations in the United States.

China accounted for about 53 per cent of Yum's revenue last year, Bloomberg data showed.

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A version of this article appeared in the print edition of The Straits Times on April 20, 2016, with the headline 'China-backed group 'has craving for Yum! China''. Print Edition | Subscribe