CIC, KKR Consortium Said to Withdraw Bid for Yum! Brands Unit

  • Bidding group said unable to agree on price with Yum
  • CIC consortium said concerned with unit’s slowing growth

A consortium backed by sovereign fund China Investment Corp. has withdrawn its bid for control of Yum! Brands Inc.’s Chinese business after failing to agree on a price with the operator of KFC and Pizza Hut eateries in the nation, a person with knowledge of the matter said.

The investor group, which also includes KKR & Co. and Baring Private Equity Asia, informed Yum’s board recently that it doesn’t plan to proceed with the offer, the person said, asking not to be identified because the matter is confidential. The consortium valued the unit at roughly $8 billion, about 20 percent lower than what Yum was seeking for China’s most popular fast-food chain, the person said.

The company also is considering a tax-free spinoff of the business as well as selling a minority stake, which people with knowledge of the matter in March said could value the unit at about $10 billion.

The group decided to withdraw its bid after initial due diligence showed profit margins were under pressure in an increasingly competitive market, the person said. Yum has seen its supremacy in the world’s second-largest economy fade, with its market share in the country falling from 39 percent in 2010 to 24 percent last year, according to Euromonitor International. 

Yum plans to add 600 outlets this year to its more than 7,100 restaurants across China, according to its website.

Singapore state fund Temasek Holdings Pte and Chinese investment firm Primavera Capital Ltd. were separately considering bids for stakes in Yum China, people said earlier. Hopu Investment Management Co., a Beijing-based private equity firm led by dealmaker Fang Fenglei, was also weighing a potential investment in Yum China, a person with knowledge of the matter said in March.

Proceeds from any investment would provide Louisville, Kentucky-based Yum with immediate cash that could be used to fund a dividend and a planned share buyback, as well as help reduce exposure to a business with shrinking market share, a person familiar said in April. China accounted for about 53 percent of Yum’s revenue last year, data compiled by Bloomberg show.

An external spokesman for Yum in China referred a request for comment to an earlier statement from the company about the unit. “Our Board is fully committed to maximizing shareholder value, and we are making great progress towards the separation of our China business by year end and at the same time returning significant capital to our shareholders,” the company said in an e-mailed statement.

CIC’s Beijing-based press office didn’t immediately respond to an e-mailed request for comment, while KKR declined to comment. An external spokesman for Baring Private Equity declined to comment. Reuters reported earlier that the group ended talks with Yum to buy a stake in the China operations, citing people familiar with the matter.

Yum agreed to separate its China business from its U.S. operations after conceding to activist-investor pressure in October. Hedge fund manager Keith Meister, a protege of billionaire Carl Icahn, said Yum’s Asian market could be better served with a more focused business.

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