Nov. 8 (Bloomberg) -- Yum! Brands Inc., owner of the KFC and Pizza Hut fast-food chains, won Chinese approval to buy Mongolian hot-pot seller Little Sheep Group Ltd. to extend its lead as the nation’s biggest restaurant operator. Little Sheep’s shares surged to a record high in Hong Kong trading.
Little Sheep jumped 15 percent to HK$6.37 at the close, the highest level since its initial share sale in June 2008. The hot-pot seller’s shares plunged 12 percent on Oct. 26, the most in three years, after Chinese regulators extended the review period of the bid.
The HK$4.4 billion ($566 million) acquisition would be Yum’s biggest and give the Louisville, Kentucky-based company more than 400 outlets offering a local cuisine in the most-populous nation, where it generates more sales than in the U.S. Independent eateries control more than 90 percent of restaurant sales in China, where regulators have blocked only one of more than 250 takeovers since an anti-monopoly law started in 2008.
“Yum’s objective is to be the leading restaurant company in China,” Joel Silverstein, president of Hong Kong-based restaurant consultancy East West Hospitality Group, said by telephone today. “It would be logical for them to look for a fast-food Chinese acquisition.”
China’s Ministry of Commerce cleared the proposal yesterday after a precondition was met, Little Sheep said in a statement today.
The plan is subject to various conditions including the approval of Little Sheep shareholders, Yum said. Yum is seeking to delist Little Sheep by offering HK$6.50 a share in cash to gain 93 percent of the company.
‘Rooted in China’
“This is another important step in executing our strategy of being rooted in China, part of China,” Yum Vice-Chairman Sam Su said in a separate statement.
Little Sheep, whose Chinese name translates to Little Fat Sheep, has more than 400 Mongolian hot-pot restaurants, where diners cook a variety of thinly sliced meats such as pork, mutton and beef in a simmering broth. The Baotou, Inner Mongolia-based company was founded in 1999.
Independent operators garnered 92 percent of restaurant sales last year in China, while chains including Yum controlled 8 percent, according to researcher Euromonitor International.
Yum, which opened its first KFC outlet in China in 1987, has more than 3,300 fried-chicken outlets across the country, accounting for about one-fifth of total chain-restaurant sales, according to Euromonitor. Little Sheep has a 2.1 percent share.
The Ministry of Commerce has reviewed 267 mergers under the anti-monopoly law and rejected only one -- Coca-Cola Co.’s $2.3 billion bid for China Huiyuan Juice Group Ltd. in 2009, according to Marc Waha, a Hong Kong-based partner at law firm Norton Rose LLP.
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