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Control of $8 Billion Yum Unit in China being sought by China Sovereign Fund

Control of $8 Billion Yum Unit in China being sought by China Sovereign Fund
Interest in buying a majority stake in Yum! Brands Inc.’s China business, which runs more than 7,100 KFC and Pizza Hut eateries across the nation has been expressed by a consortium backed by sovereign fund China Investment Corp, reported Bloomberg.  
Quoting people with knowledge of the matter, the news agency reported that  a process of due diligence on the unit is being conducted by the investor group, which also includes KKR & Co. and Baring Private Equity Asia. Sources said that a deal could value Yum! China at $7 billion to $8 billion.
The cash that Louisville, Kentucky-based Yum would get from such a deal would help it to reduce exposure to a business with shrinking market share and fund a dividend and its planned share buyback. Control of a leading fast-food chain in the Chinese market for the first time would be possible for the CIC consortium if they manage to get a majority stock purchase.  
“It’s a matter of this being the type of asset that comes up for sale very rarely and the Chinese have been looking all over the world for good buys. Consumers are the bright spot in China right now,” Ben Cavender, a Shanghai-based analyst at China Market Research Group, told Bloomberg.
Sources said that the China-backed investor group is interested in buying as much as 100 percent of Yum China. Though it may still decide to pursue the sale of a minority stake or proceed with a previously announced tax-free spinoff of the business, Yum is considering all options, sources told Bloomberg. There is no formal sale process run by the company currently.
Compared with a 5.8 percent gain for the Standard & Poor’s 500 Restaurants Index, Yum shares dropped 1.5 percent to $81.38 at 9:49 a.m. in New York through Monday’s close.
Sources said that Chinese investment firm Primavera Capital Ltd. and Singapore state fund Temasek Holdings Pte are separately vying for stakes in Yum China. Led by dealmaker Fang Fenglei, also in the race is Beijing-based private equity firm Hopu Investment Management Co, even though deliberations are at an early stage.
The company continues to make “good progress” since it announced the separation of its China business said a representative for Yum in an e-mailed statement to Bloomberg. CIC’s Beijing-based press office didn’t immediately reply to an e-mail seeking comment, while representatives for Baring and KKR declined to comment.
“We decline to comment on market speculation,” Temasek said in an e-mailed statement.
In China, foreign chains like KFC, which opened its first Chinese outlet in Beijing in 1987, outpace the performance of locally owned chains. According to Euromonitor International, compared to Yum’s 24 percent, the biggest home-grown operator, Hua Lai Shi Catering Management & Service Co., had a three percent market share last year.

Christopher J. Mitchell

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