Newspaper article International New York Times

Yum Brands Plans to Spin off China Operations

Newspaper article International New York Times

Yum Brands Plans to Spin off China Operations

Article excerpt

A string of mishaps in China have bedeviled Yum Brands over the last several years, most stemming from problems with its poultry suppliers.

Yum Brands, the restaurant company that owns KFC, Pizza Hut and Taco Bell, said on Tuesday that it intended to split off its Chinese operations into a separate company.

A string of mishaps in China have bedeviled Yum Brands over the last several years, most stemming from problems with its poultry suppliers.

The average sales of a KFC store in China are now $1.2 million, down from $1.7 million in 2012, the year the food-safety scandals started to surface. Yum recently replaced the longtime head of its Chinese operations, Sam Su.

Micky Pant, who was serving as chief executive of KFC, was assigned the task of turning the China operations around and now will head the spun-off company.

"Following the separation, each stand-alone company will be able to intensify focus on its distinct commercial priorities, allocate its own resources to meet the needs of its business, and pursue distinct capital structures and capital allocation strategies," Greg Creed, the Yum Brands chief executive, said in a news release. "This will provide a clear investment thesis and visibility to attract a long-term investor base suited to each business."

The separation is expected to be completed by the end of 2016, subject to regulatory approval and other conditions. As part of the changes, Yum Brands' business in India will merge with the global divisions of KFC, Pizza Hut and Taco Bell in January 2016, the company said.

Investment analysts and investors had been pressing Yum for years about weakness in its China business. Pizza Hut, which felt little or no effect from the poultry-related issues that KFC faced there, also has not performed well, and Mr. Creed has spent much of the time on conference calls with analysts answering questions about China.

More recently, analysts began calling for a breakup of Yum, either breaking it into three separate restaurant businesses or shearing off China operations.

Keith Meister, an activist investor who was pushing for similar changes, was named to the Yum Brands board this month. "With the transaction announced today, Yum is taking an important step in establishing the right corporate structure and capital structure to maximize long-term shareholder value," Mr. Meister, the founder of Corvex Capital, said in a statement.

Jonathan Blum, a spokesman for Yum Brands, said the company retained Goldman Sachs and Wachtell, Lipton, Rosen & Katz about a year ago to offer advice on what its strategy should be. "This isn't something we came up with all of a sudden in response to Wall Street," he said.

He denied that Yum Brands was getting rid of a headache by splitting off its troubled Chinese business. …

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