Corvex’s Meister Says Yum Should Break Off China Business

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Yum! Brands Inc. should spin off its China business to increase value, according to Keith Meister, founder of activist hedge fund Corvex Management, which says it’s one of the restaurant group’s five largest shareholders.

“We think there is a clear, obvious way to create value and that’s to separate the business,” he said at the Sohn Investment Conference in New York on Monday, adding that such a move would create additional value of $16 per share. If the firm creates a China entity, it will be “levered to the endless growth to the Chinese middle class.”

The owner of fast-food brands KFC, Pizza Hut and Taco Bell opens three stores in China and two elsewhere in the world each day, Meister said today in a Bloomberg Television interview with Stephanie Ruhle. In China it usually owns and operates the stores because “there isn’t a mature franchise market” yet, posing different volatility and risks than in other countries.

The China unit could be worth $40 to $70 per share, he said. Corvex owns more than 15 million shares of the restaurant operator, valued at $1.5 billion, the firm’s second-biggest investment ever, according to Meister.

Yum shares slipped 0.5 percent to $91.40 at 2:54 p.m. in New York trading.

“Don’t be comfortable with 10 percent EPS growth for the next decade when you can have 20 percent,” he said.

Dan Loeb

Meister, who previously worked for billionaire investor Carl Icahn, formed Corvex at the end of 2010, and today the firm manages about $8 billion.

“We welcome the input of our shareholders and remain committed to explore all options to enhance long-term shareholder value,” Yum said in an e-mailed statement Monday. “In any event, our focus is to get our China business back on track.”

Third Point, the sometimes-activist hedge fund run by Dan Loeb, last week told investors that it bought a “significant stake” in the restaurant operator, saying its business in China will recover from recent food-safety issues and benefit from middle class growth. Corvex’s new stake was also disclosed last week by a person familiar with the matter.

Third Point and Corvex haven’t discussed their respective Yum investments or proposals for the company, Meister told Bloomberg Television today.

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