Temasek, CIC-KKR advance to second round of Yum China stake sale: sources

Thu May 19, 2016 5:13am EDT
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By Lauren Hirsch and Saeed Azhar

NEW YORK/SINGAPORE (Reuters) - Singapore state investor Temasek Holdings and a consortium that includes China Investment Corp (CIC) and KKR & Co (KKR.N: Quote) have advanced to a second round of bidding for a minority stake in Yum Brands Inc's (YUM.N: Quote) China unit, people familiar with the matter told Reuters.

Another private equity-backed consortium has also moved to the second round, the people said, although its identity could not be immediately confirmed. Louisville, Kentucky-based Yum Brands, owner of the Pizza Hut and KFC fast food chains, aims to spin off its 7,205 China restaurants by the end of 2016, amid pressure from activist investor Corvex Management, whose founder, Keith Meister, is on Yum's board.

The second round of bids for the stake up for sale - around 20 percent of the business - are due by the end of this month, the people said, declining to be identified because the information was confidential.

Yum's entire China unit is valued between $8 billion and $11 billion, based on its core earnings of about $1 billion, the people said.

"I will tell you as a large shareholder, the Yum board selling this business for $7 or $8 billion is not the right thing, and I don't think anyone would disagree about that," Corvex's Meister told CNBC in a recent interview. Corvex owns 5.2 percent of Yum, according to Thomson Reuters data.

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

In the latest quarter, Yum's China sales grew faster than Wall Street estimates, raising expectations that a key profit driver for Yum is showing signs of stability after battling many quarters of disappointing sales.

Yum shares haven risen 9.7 percent in New York so far this year, while the S&P 500 Index .SPX has been flat in the same period.   Continued...

A customer walks out of a KFC restaurant in Shanghai, China, October 9, 2015.  Yum Brands Inc, the owner of KFC and Pizza Hut, releases its first-quarter earnings results after the bell.  REUTERS Aly Song/File Photo