The sale process for a stake in Yum Brands Inc’s China business, which operates Kentucky Fried Chicken and Pizza Hut eateries in the country, has been delayed, people with knowledge of the matter said.
Potential bidders, including Singapore state investment company Temasek Holdings Pte and Chinese private equity firm Primavera Capital Ltd (春華資本), missed a deadline earlier this month to submit offers for a minority stake in the business, the people said.
The suitors held off on submitting bids after Yum sought to impose new terms on the investments, said one of the people, who asked not to be identified, because the information is private.
The investors also indicated they disagree with Yum’s proposed valuation of US$10 billion for the China unit, which runs more than 7,200 restaurants in the country, the people said.
The sale process has been delayed by at least several weeks, according to one person.
Yum last year bowed to activist pressure and agreed to separate its China business from the rest of the company after a prolonged sales slump caused by food safety scandals.
Since the announcement of the spinoff in October last year, Yum has turned in stronger same-store sales from Kentucky Fried Chicken in China, but its Pizza Hut division there has continued to falter.
“Yum thinks they’re better than they are. They used to be one of the best-managed brands in China, but they have lost ground due to the food safety scandal and failure to keep up with consumers’ tastes,” Shanghai-based China Market Research Group managing director Shaun Rein (雷小山) said by telephone yesterday.
Under the stricter terms, Yum would not be obliged to pay royalties to the China business to use any new products developed in the country, according to one of the people.
Yum also said it would not share the burden for some of the Chinese unit’s ad spending, the person said.
Yum informed the investors of the new conditions just days before the bid deadline, the person said.
The company had aimed to grant exclusive negotiating rights to one bidder after examining the offers, according to the person.
The suitors might still end up submitting offers for the stake in the China business, although Yum has not set a revised bid deadline, according to the people.
PAG Asia Capital (太盟亞洲資本), a Hong Kong-based private equity firm, is also evaluating an offer, one of the people said.
Yum’s board is “fully committed to maximizing shareholder value” and the company is making “great progress” toward the separation of the China business, Yum spokeswoman Virginia Ferguson said by e-mail on Monday.
Temasek said in an e-mailed statement that it declined to comment on market speculation.
At an investor conference this month, Yum CEO Greg Creed said that he expects the China separation to occur on about Oct. 31.
Last month, a group backed by sovereign wealth fund China Investment Corp (CIC, 中國投資公司) withdrew its bid for control of the China business after failing to agree on a price, people with knowledge of the matter said earlier.
The CIC-led group decided to pull its offer after initial due diligence showed profit margins were under pressure in an increasingly competitive market, a person familiar with the matter said at the time.
Yum has seen its supremacy in the world’s second-largest economy fade, with its market share in the country falling from 39 percent in 2010 to 24 percent last year, according to Euromonitor International Ltd.
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