China's CIC, KKR consortium in talks to buy control of Yum China unit: sources

Wed Apr 20, 2016 2:47pm EDT
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By Denny Thomas, Saeed Azhar and Prakash Chakravarti

HONG KONG/SINGAPORE (Reuters) - A group of investors comprising sovereign wealth fund China Investment Corp (CIC), KKR & Co (KKR.N: Quote) and Baring Private Equity Asia is in talks to buy a controlling stake in Yum Brands Inc's (YUM.N: Quote) China unit, people familiar with the matter said.

Yum Brands, owner of the Pizza Hut and KFC fast food chains plans to spin off its 6,900 China restaurants by the end of 2016. The China unit accounts for about half of its parent's total sales and is valued at about $10 billion, based on its core earnings, bankers and analysts estimate.

The U.S.-based company had initially planned to sell a stake of about 20 percent in the China operation to anchor investors ahead of a planned listing of the business in New York Exchange and possibly in Hong Kong.

But the deal structure is being reworked as acquiring a minority stake is less appealing for buyout firms, making it difficult for them to secure debt funding to finance the deal. It wasn't immediately clear how much the investor group plans to pay for Yum's China business.

Bloomberg first reported the news and said the deal could vale Yum China at between $7 billion-$8 billion..

According to people familiar with the transactions, speaking on condition of anonymity because the talks were confidential, it was unclear whether Yum would agree to sell a majority stake, as disposing of more than 20 percent of the China business would attract a higher tax bill.

Yum, still the largest fast food chain in China, has been losing ground to McDonald's Corp (MCD.N: Quote) as both strive to revive flagging sales in the teeth of growing competition from local rivals and a slowing economy.

McDonald's itself is changing its business model in Asia by planning to bring in partners to own a majority of its restaurants within a franchise operation.   Continued...

A customer walks out of a KFC restaurant in Shanghai, China, October 9, 2015. REUTERS Aly Song/File Photo