Yum China Stake Sale Said Delayed as Suitors Miss Deadline

  • Suitors including Temasek, Primavera hold off submitting bids
  • Potential investors balk at new conditions imposed by Yum

The sale process for a stake in Yum! Brands Inc.’s 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 state investment company Temasek Holdings Pte and Chinese private equity firm Primavera Capital Ltd. missed a deadline earlier this month to submit offers for a minority stake in the business, the people said. The suitors held off submitting bids after Yum sought to impose new terms on the investments, said one of the people, who asked not to be identified because the information is private.

The investors also indicated they disagree with Yum’s proposed valuation of $10 billion for the China unit, which accounts for more than half of company revenue, the people said. The sale process has been delayed by at least several weeks, according to one person.

Yum shares rose as much as 1.5 percent in early trading in New York Tuesday, climbing slightly less than the S&P 500 Restaurants Index, which was up 1.7 percent.

Yum last year bowed to activist pressure and agreed to spin off its China business into a separate publicly traded company after a prolonged sales slump caused by food-safety scandals. Since the announcement of the spinoff in October, Yum has turned in stronger same-store sales results from KFC in China, but its Pizza Hut division there has continued to falter. 

“Yum thinks they’re better than they are. They used to be one of the best-managed brands in China,” Shaun Rein, managing director of Shanghai-based China Market Research Group, said by phone Tuesday. “But they have lost ground due to the food safety scandal and failure to keep up with consumers’ tastes.”

New Products

Under the stricter terms, Yum wouldn’t 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 wouldn’t share the burden for some of the Chinese unit’s ad spending, the person said.

Yum informed the investors of the new conditions just days before the bid deadline, the person 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 hasn’t 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 the people said.

Yum’s board is “fully committed to maximizing shareholder value,” and the company is making “great progress” toward the separation of the China business, Virginia Ferguson, a spokeswoman for Yum, said by e-mail Monday. 

“We’re confident that, as a well-capitalized, standalone public company, it will have a long runway for continued growth,” Ferguson said.

Calls to the mobile phone of Fred Hu, Primavera’s founder, were redirected to his secretary, who said he’s not available to comment. Temasek said in an e-mailed statement it declined to comment on market speculation. PAG Asia Chief Executive Officer Shan Weijian didn’t answer a phone call seeking comment.

Increasing Competition

At an investor conference in June, Chief Executive Officer Greg Creed said that he expects the China separation to occur around Oct. 31. Last month, a group backed by sovereign wealth fund China Investment Corp. withdrew its bid for control of the China business after failing to agree on a price, people with knowledge of the matter said earlier.  

The CIC-led group decided to pull its offer after initial due diligence showed profit margins were under pressure in an increasingly competitive market, a person familiar with the matter said at the time.

Yum has seen its supremacy in the world’s second-largest economy fade, with its market share in the country falling to 24 percent last year from 39 percent in 2010, data from Euromonitor International show. The company plans to add 600 outlets this year to its more than 7,200 restaurants across China, according to its website.

Hopu Investment Management Co., a Beijing-based buyout 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.

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