March 24, 2016

The Wall Street Journal reports that KKR & Co., Hopu Investments, Hony Capital, and Baring Private Equity Asia are among a field of investors in talks with Yum Brands regarding the acquisition of a stake in its China business, according to unnamed sources.

Yum, which owns Taco Bell, KFC, and Pizza Hut, and has a market value of $32 billion, announced plans to spin-off its China operations (which carries its own market valuation of approximately $10 billion based on its core earnings) in October of last year in order to distance the company from the volatility and fall out from food safety scares, cooling of fast food demand, increasing competition, and the growing popularity of food apps.

As an initial step toward the spin-off, which Yum hopes to complete by the end of 2016, Reuters reports that the group is seeking an ‘anchor investor’ which it hopes would have experience within the Chinese market and the ability to attract other investors, however there is the possibility that interested investors will combine to form a bidding consortium. Yum has stated that it is looking to keep the stake below 20% in order to avoid a significant tax bill in association with the deal.

Yum launched its first KFC in Beijing in 1987 making it the first Western quick service food company to gain a presence in the country. Since then the company’s China division has seen meteoric growth, with revenue from China climbing 35% in 2011 to $5.6 billion and accounting for 44% of the group’s total global revenue with operating profits climbing 20% to reach $908 million according to the Wall Street Journal.

However, food safety scandals that hit the group in 2012 began a downward slide for the unit, and over the ensuing years, additional headwinds posed a challenge to the business, until in 2014 revenue from the China unit was flat at $6.9 billion and operating profits fell by 8% to $713 million.