LEGAL | Staff Reporter, China

Is a Yum China buyout on the horizon?

KFC, Pizza Hut, and Taco Bell in China could soon belong to new owners.

Media reports found that Chinese investment firms are in talks about acquiring Yum China Holdings Inc, the operator of KFC, Pizza Hut and Taco Bell in China, in what could be one of Asia's biggest M&A deals of the year.

According to Reuters, which first reported on the story, Hillhouse Capital Group is planning to lead a consortium to buy the firm. The firm, which has received commitments of over $10 billion for a new fund, is working with lenders for potential financing of the deal and other investors to join them in the bid.

The news follows earlier reports by Bloomberg that Chinese sovereign fund China Investment Corp. was backing a potential takeover of the fast food brand operator. Along with DCP Capital, the company was part of the Hillhouse consortium.

Other firms that are reportedly part of the consortium include global investment house KKR & Co., Hong Kong-based Baring Private Equity Asia, and the Primavera Capital Group. It remains unclear whether the investors are working as one bidding group, allowing for a possibility of there being more than one consortium of bidders.

Yum China had separated from Yum Brands! Inc., the owner of KFC and Pizza Hut, in 2016 and subsequently listed on the New York Stock Exchange. The firm also reportedly plans to switch to the Hong Kong bourse, due to the city’s proximity to the Chinese market, and a potentially higher valuation.

In the second quarter of the year, the firm reported a 14% increase in its earnings, taking in US$143 million on the back of strong performance and accelerated growth of KFC. Pizza Hut, meanwhile, continued to face challenges in China’s competitive casual dining space.

"KFC achieved 5% system sales growth in the second quarter as a result of solid business fundamentals and accelerated new store development. We are on track to add 600-650 new stores, led by KFC, by the end of the year. This growth strategy will set us up for long-term growth in both profitability and market share. We are confident in the sustainability of KFC's leader position in the QSR market in China,” Joey Wat, CEO of Yum China had said.

“While Pizza Hut continued to face challenges in China's competitive casual dining space, we added new talent to our team and made progress repositioning the brand with our target customers. We remain dedicated to revitalizing the brand and strongly believe that our initiatives including delivering more innovative products and introducing new store formats will restore the brand to the level of consistent growth that our shareholders expect."

Yum China declined to comment on market rumors when asked about the buyout intent and its supposed plans to list in the Hong Kong bourse.

Former Yum China chairman and chief executive officer Sam Su, who was pivotal in the company’s expansion in China, now serves as an operating partner at Hillhouse Capital.

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