Yum Brands Will Split Off China Business
Yum Brands will spin off its Yum! China operations into a separately traded public company that will have exclusive rights to Yum's three top franchises.
The owner of KFC, Pizza Hut and Taco Bell announced Tuesday morning that the company intends to hive off its China business into a separate company by the end of next year. Yum! Brands Inc. (NYSE: YUM) will spin off its Yum! China operations into a separately traded public company that will have exclusive rights to Yum’s three top franchises.
Yum is targeting 95% franchisee-owned and operated stores by the end of 2017. The company currently claims a base of more than 41,000 stores and plans to open 2,000 more in 2016. The company is giving something up too:
Yum! Brands is committed to returning substantial capital to shareholders in conjunction with the separation. This will occur as the Company transitions to a non-investment grade credit rating with a balance sheet more consistent with highly leveraged peer restaurant franchise companies. Moreover, this will allow for an ongoing return of capital framework that will seek to optimize the Company’s long-term growth rate on a per-share basis.
The separation follows a push for Yum’s reorganization by activist investment firm Corvex Management, which owns almost 5% of the company. Corvex’s Keith Meister was appointed to Yum’s board of directors last week.
Yum’s China business has never fully recovered from a tainted food scandal in late 2012 and successive issues related to the Chinese operations. Apparently letting the China business sort itself out while putting the rest of the company on a high-growth path isolates the problems and is expected to give Yum a lift.
That is certainly the way investors are looking at Tuesday. Shares traded up more than 3% at an intra-day high of $75.22 after closing at $71.71 on Monday. The stock’s 52-week range is $66.35 to $95.90, and the consensus price target is $81.47.
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Paul Ausick has been writing for 247Wallst.com for more than a decade. He has written extensively on investing in the energy, defense, and technology sectors. In a previous life, he wrote technical documentation and managed a marketing communications group in Silicon Valley.
He has a bachelor's degree in English from the University of Chicago and now lives in Montana, where he fishes for trout in the summer and stays inside during the winter.
