Yum Brands, owner of KFC and Pizza Hut, is in talks with private equity firms including KKR & Co LP and Hopu Investments to sell a minority stake in its China operations as it prepares to spin off the once booming unit, two sources familiar with the plans said yesterday.
Several other Chinese investors were also looking into the deal, said the sources, who declined to be named.
The potential investment comes after a difficult few years for Yum in China, its biggest market by sales, where a series of food-safety scandals and management mis-steps has dented its reputation with diners.
The chain plans to spin off its 6,900 restaurants in China, which account for about half of the company’s total sales, by the end of 2016. Yum China will list on the New York Stock Exchange, and possibly in Hong Kong.
The China business could be valued at about $10bn, analysts and bankers estimate, based on its core earnings.
Yum, still the largest fast food chain in China, has been losing ground to McDonald’s Corp as they both strive to revive flagging sales in the teeth of growing competition from local rivals and a slowing economy.
“We continue to make good progress since we announced the transaction separating Yum and Yum China,” a Yum spokesperson said by e-mail. “We will provide updates on the transaction at appropriate times, and we won’t comment on rumours or speculation.”
Yum’s China sales dipped 0.4% in 2015, after two flat years, underlining how managers have struggled to repair its reputation since the food safety scares.  Chinese diners once flocked to its outlets – and to McDonald’s – helping drive revenue growth of nearly 30% a year between 2006 and 2012.
Yum China, under new boss Micky Pant, is facing a cocktail of challenges in China: a slowing fast-food market, the rise of food delivery apps creating an online price war, and a lack of local franchise partners.
Analysts said securing private equity investment would be no silver bullet for recovery, but could help drive faster store growth and fund a makeover for older stores. “My guess is that they are looking at sources of funding so they can refurbish or revamp their stores here or expand more aggressively,” said Ben Cavender, Shanghai-based principal at China Market Research Group. Hopu Investments, a China-based private equity firm co-founded by former Goldman Sachs banker Fang Fenglei, was not available for immediate comment. KKR declined to comment.
Singapore state investor Temasek Holdings had been approached about the deal, but it was unclear whether talks were ongoing, one source said.