August 18, 2015 / 9:54 PM / in 2 years

Yum China gets new leadership as activists push for spinoff

(Reuters) - Yum Brands Inc (YUM.N) announced on Tuesday new leadership for its China division as investor activists lobby for the owner of the KFC and Pizza Hut brands to spin off that business, which is its biggest driver of revenue and profit.

A man walks past a logo of KFC, outside a restaurant in Shanghai, China, July 30, 2015. REUTERS/Aly Song

Shares of Yum rose 2.2 percent to $86.06 in extended trading.

Yum said company veteran Micky Pant, 60, would replace retiring Sam Su, 63, as chief executive of the China division.

Su, who has been with Yum for 26 years, was instrumental in making Yum the biggest Western restaurant chain in China.

Pant, currently CEO of Yum’s KFC Division, will become CEO of Yum China on Wednesday.

At the end of the second quarter, KFCs accounted for 4,889 of Yum’s 6,853 China restaurants.

Yum spokesman Jonathan Blum declined comment on growing Wall Street speculation that the company would spin off its China operations. Asked if the China changes were in preparation for such a move, Blum said, “No.”

Su will serve as an executive adviser through February 2016 and remain on Yum’s board to assist with the transition.

The company also announced that Joey Wat, 44, had been promoted to CEO of KFC China. She was previously president of KFC China. Peter Kao, 58, was promoted to CEO of the Pizza Hut brand in China. Kao was previously senior vice president and brand general manager of Pizza Hut China.

J.P. Morgan analyst John Ivankoe said in a client note in May that he came away from Yum’s recent China investor conference with sense that a China spinoff was more a “probability” than a “possibility.”

Hedge fund Corvex Management, which has urged Yum to spin off the China unit, said the business could be worth more than Yum’s share price suggests.

Corvex did not respond to a request for comment.

Yum China booked four consecutive quarters of steep same-restaurant sales declines following allegations of improper meat handling at OSI Group’s Shanghai Husi Food Co Ltd in July 2014.

Shanghai Husi was a small supplier to Yum, which immediately cut ties to the company.

Blum said sales at Yum’s established China restaurants have turned “significantly positive” in the current quarter.

Still, analysts warned that China’s cooling economy and recent currency devaluation increase risk.

The changing of the guard “is likely not a harbinger of the business getting easier in China for Yum,” Jefferies analyst Andy Barish said in a note.

Additional reporting by Ramkumar Iyer in Bengaluru; Editing by Saumyadeb Chakrabarty

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