Yum Brands Sells Slice of China Business Ahead of Spinoff -- Update
September 02 2016 - 7:37AM
Dow Jones News
By David Benoit, Kane Wu and Rick Carew
Yum Brands Inc., the owner of KFC and Pizza Hut, has struck a
deal to sell a slice of its China operations to a prominent Chinese
deal maker and the financial affiliate of Chinese internet giant
Alibaba Group Holding Ltd., as it prepares for a spinoff of the
China unit.
Primavera Capital, run by former Goldman Sachs Group Inc.
Greater China Chairman Fred Hu, and Ant Financial Services Group
will buy a combined $460 million stake in the Yum China Holdings
Inc. spinoff. They will buy the shares at an 8% discount to the
average price at which Yum China's shares trade between 31 days and
60 days after they are distributed to Yum shareholders. The two
investors could own between 4% and 6% combined of Yum China,
depending on how the shares trade.
The Wall Street Journal earlier reported on the deal.
The Chinese backing could spark interest in the spun-off company
among other investors after it separates from Yum Brands and begins
trading separately on the New York Stock Exchange in November. Ant
Financial Services runs China's largest online payments service
Alipay and has investments in the online food-delivery business.
Mr. Hu, a well-respected economist and deal maker, will become Yum
China's chairman.
Louisville, Ky.-based Yum has had huge success in building
Kentucky Fried Chicken into China's most popular fast-food chain
since it entered the country in 1987. In recent years, the
franchise stumbled as growing competition and food-safety concerns
hit sales. The KFC brand in China has returned to positive sales
growth over the past year, and Yum China overall generates over a
billion dollars of cash flow annually.
The new investors are betting that Yum China's value will
continue to grow. As part of the agreement, Primavera and Ant
Financial will receive warrants to buy 2% chunks of Yum China
shares twice at valuation thresholds of $12 billion and $15
billion. Those warrants will have a five-year term and could
increase the two investors' ownership to nearly 10% if
exercised.
While Yum Brands will no longer own shares in Yum China after
the spinoff, the Chinese operation will continue to pay a 3%
royalty rate to Yum Brands. The Yum China business will be
debt-free after the spinoff and will have the fresh cash from
Primavera and Ant Financial to fund growth plans.
The decision to separate the operations came after Yum Brands
fell under pressure from activist investors', including Corvex
Management LP and Dan Loeb's Third Point LLC, suggesting overhauls.
Corvex's Keith Meister, who has pushed hard for the China spinoff,
received a seat on Yum's board in October and has been instrumental
in negotiations, according to people familiar with the matter.
Corvex is among Yum Brands' top holders with a 5.4% stake.
Yum's partnership with Ant Financial, China's most valuable
internet finance company at $60 billion, could help the fast-food
chain navigate China's rapidly changing and highly competitive
food-delivery business. More transactions take place over Alipay at
Yum China's KFC and Pizza Hut chains than at any other fast-food
chain in China.
Chinese e-commerce giant Alibaba, together with its financial
affiliate, has carved out a territory in China's competitive online
food-delivery and booking-services market. Alibaba and Ant
Financial together made a $1.25 billion bet on food-delivery app
Ele.me in April. The two also control online food-services platform
Koubei, which means "word-of-mouth reputation" in Chinese and has
been growing quickly in recent months. Those Alibaba-backed
platforms compete with Meituan-Dianping, China's largest online
provider of movie-ticketing and restaurant bookings, as well as
Chinese search company Baidu Inc.'s Nuomi platform.
Primavera Capital is a China-based private-equity firm founded
by Mr. Hu, who led Goldman's $2.9 billion deal to take a 5% stake
in Industrial & Commercial Bank of China Ltd. ahead of its huge
initial public offering. Mr. Hu has built ties with a range of
China's most important financial figures and earned a Ph.D in
economics from Harvard University.
Primavera was also an investor in Alibaba before its initial
public offering as part of a financing package raised to repurchase
half of Yahoo Inc.'s stake in Alibaba. Mr. Hu's role in that deal
and close relationship with Alibaba Executive Chairman Jack Ma won
Primavera a coveted early investment in Ant Financial last year at
a valuation below its latest $60 billion price tag.
Write to David Benoit at david.benoit@wsj.com, Kane Wu at
Kane.Wu@wsj.com and Rick Carew at rick.carew@wsj.com
(END) Dow Jones Newswires
September 02, 2016 07:22 ET (11:22 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Yum Brands (NYSE:YUM)
Historical Stock Chart
From Mar 2024 to Apr 2024
Yum Brands (NYSE:YUM)
Historical Stock Chart
From Apr 2023 to Apr 2024