Yum China stake sale delayed

HONG KONG • The sale process for a stake in Yum Brands' China business, which operates KFC and Pizza Hut eateries in the country, has been delayed, people with knowledge of the matter said.

Potential bidders, including Singapore's investment company Temasek Holdings and Chinese private equity firm Primavera Capital, missed a deadline earlier this month to submit offers for a minority stake in the business, sources said. The suitors held off submitting bids after Yum sought to impose new terms on the investments, said a source, who asked not to be identified because the information is private.

The investors also indicated they disagree with Yum's proposed valuation of US$10 billion (S$13.5 billion) for the China unit, which runs more than 7,200 restaurants in the country, sources said. The sale process has been delayed by at least several weeks.

Yum last year bowed to activist pressure and agreed to separate its China business from the rest of the company, in part to focus on reviving its United States operations.

Since the announcement of the spin-off in October last year, Yum has turned in stronger same-store sales results from KFC in China, but its Pizza Hut division there has continued to falter.

Under the stricter terms, Yum would not be obliged to pay royalties to the China business to use any new products developed in the country, according to one of the people. Yum also said it would not share the burden for some of the China unit's advertisement spending, the person said.

Yum informed the investors of the new conditions just days before the bid deadline, the source said. The company had aimed to grant exclusive negotiating rights to one bidder after examining the offers, according to the person.

The suitors may still end up submitting offers for the stake in the China business, though Yum has not set a revised bid deadline, according to the people. PAG Asia Capital, the Hong Kong-based private equity firm, is also evaluating an offer, one of them said.

Yum's board is "fully committed to maximising shareholder value" and the company is making "great progress" towards the separation of the China business, spokesman for Yum Virginia Ferguson said.

Calls to the mobile phone of Primavera founder Fred Hu were redirected to his secretary, who said he was not available to comment. Temasek said in an e-mail statement that it declined to comment on market speculation. PAG Asia chief executive officer Shan Weijian did not answer a phone call seeking comment.

At an investor conference earlier this month, CEO Greg Creed said that he expects the China separation to occur around Oct 31.

Yum has seen its supremacy in the world's second-largest economy fade, with its market share in the country falling to 24 per cent last year from 39 per cent in 2010, according to Euromonitor International.

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A version of this article appeared in the print edition of The Straits Times on June 29, 2016, with the headline 'Yum China stake sale delayed'. Print Edition | Subscribe