Yum to Sell Stake in Chinese Unit, Setting Stage for Spinoff

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  • Primavera Capital, Ant Financial will pay $460 million
  • Yum will turn Chinese operations into separate company Oct. 31

Yum! Brands Inc. agreed to sell a combined $460 million stake in its Chinese operations to Primavera Capital Group and Ant Financial Services Group, a deal that sets the stage for a spinoff of the business into a separate company next month.

Primavera, a Chinese private equity firm, will invest $410 million in the spinoff, according to a statement Friday. Ant Financial, an affiliate of e-commerce giant Alibaba Group Holding Ltd., will put $50 million into the business. Primavera founder Fred Hu, the former Goldman Sachs Group Inc. chairman in charge of Greater China, will become chairman of the new company, which will be called Yum China.

Yum, the sprawling fast-food empire that includes KFC, Pizza Hut and Taco Bell, announced plans last year to turn its Chinese operations into a publicly held company. The move followed pressure from investors, who felt the company would better serve local markets and increase shareholder value by operating separately.

The spinoff remains on track to be completed Oct. 31, Yum said. The new company will then start trading on the New York Stock Exchange under the ticker YUMC on Nov. 1.

Yum shares rose less than 1 percent to $91.26 of 9:38 a.m. in New York. The stock had gained 24 percent this year through the close of trading on Thursday.

Investment Terms

The investors will buy the shares at an 8 percent discount to the average price of Yum China’s stock between 31 days and 60 days after the spinoff, Yum said in the statement. The two firms will receive warrants to buy Yum shares equal to 2 percent equity ownership for each of two blocks, according to the statement. Strike prices will correlate to equity values of $12 billion and $15 billion, the company said.

Ant Financial, the Alibaba affiliate, operates the widely used Alipay mobile-payments platform. The firm will assist with an electronic payment system that works across the restaurant brands. Yum and other fast-food chains have increasingly relied on mobile apps and payment technology to speed customers through their restaurants.

“We expect Ant Financial can provide further unique insights to help us better connect with consumers through mobile technology,” Micky Pant, Yum China’s chief executive officer, said in the statement.

Challenging Market

Though the Chinese market offers the promise of growth -- and represents more than half of Yum’s revenue -- it’s been a challenge for the company in recent years. Food-safety scandals hurt Yum’s reputation, and a shift by Chinese consumers toward healthier options and local food chains took a toll on sales.

But Yum’s performance in Asia has shown signs of picking up. The overall company’s second-quarter profit beat estimates, helped by the KFC chain’s better-than-expected performance in China. Still, revenue dropped 3 percent to $1.6 billion in its China business, which accounted for 53 percent of the group’s total. Yum shares have advanced 24 percent this year.