Yum! Brands China sale falters

Following a missed deadline by potential investors, the sale of a minor stake in Yum! Brands China business has been delayed.

Yum runs KFC and Pizza Hut outlets in China, while the potential bidders include Singapore state investment company Temasek Holdings and Chinese private equity firm Primavera Capital.

One report says the suitors held off submitting bids after Yum tried to impose new terms on the investments. The investors have also indicated they disagree with Yum’s proposed valuation of $10 billion for the China unit.

After a prolonged sales slump caused by food-safety scandals, Yum last year decided to spin off its China business into a separate publicly traded company. Since this was announced in October, Yum has had stronger same-store sales results from KFC in China.

With the terms change, Yum would not be obliged to pay royalties to the China business for any products it developed, plus it would not share the burden for some of the Chinese unit’s advertising spend.

Yum told potential investors of the new conditions just days before the bid deadline, and the company has yet to set a revised deadline.

Meanwhile, Yum spokeswoman Virginia Ferguson says the company is making “great progress” toward the separation of the China business.

At an investor conference this month, CEO Greg Creed said he expects the China separation to occur around the end of October.

A group backed by sovereign wealth fund China Investment Corp withdrew a bid for control of the China business after failing to agree on a price. It claimed that initial due diligence showed Yum’s profit margins were under pressure in an increasingly competitive market.

Yum’s market share in China fell to 24 per cent last year from 39 per cent in 2010, data from Euromonitor International shows.

According to its website, the company plans to add 600 outlets this year to its more than 7200 restaurants across China.