China’s sovereign wealth fund backs $13b takeover of Yum China

Pedestrians walk past Yum! Brands Inc. Pizza Hut and KFC restaurants in Shanghai, China. Photographer:Qilai Shen/Bloomberg

China Investment Corp. is backing a potential takeover of Yum China Holdings Inc., which runs KFC and Pizza Hut outlets in the world’s most populous nation, people with knowledge of the matter said.

The sovereign fund and DCP Capital, the investment firm run by former KKR & Co. senior executives, are part of a consortium with Hillhouse Capital that’s considering a buyout of Yum China, according to the people. Baring Private Equity Asia is also joining the investor group, which already includes KKR, the people said, asking not to be identified because the information is private.

Yum China shares have fallen 14.5 percent this year, giving it a market value of $13.1 billion in New York. The consortium is considering taking Yum China private with an eye to potentially relisting the business in Hong Kong at a later date, one of the people said.

A takeover of the company, which was spun off from Yum! Brands Inc. in 2016, would be the biggest-ever Chinese takeover of a consumer firm, data compiled by Bloomberg show. Private equity firm Primavera Capital, which owned 4.3 percent of Yum China as of June, has been weighing options for its stake in the company and could consider joining a bidding group, according to the people.

KKR Veteran

No final decisions have been made, and the makeup of the bidding group could still change, the people said. There’s no certainty the deliberations will lead to a transaction, they said.

CIC’s press office didn’t immediately reply to an email seeking comment, and an official at Primavera didn’t immediately respond to requests for comment. A representative for Hillhouse said she couldn’t immediately comment. Representatives for Baring, DCP Capital, KKR and Yum China declined to comment.

DCP Capital was started last year by buyout veterans including David Liu, the former China head and co-head of Asia private equity at KKR. In May, it agreed to invest in Venus Medtech, a Hangzhou-based developer of heart valve replacements that’s backed by Goldman Sachs Group Inc.

Biggest Footprint

Yum China operates the country’s biggest network of fast-food restaurants, with about 8,200 outlets spread across more than 1,200 cities at the end of June, according to its latest results. The company is struggling to attract younger Chinese diners to its Pizza Hut restaurants in the face of increasing local competition and changing eating habits that favor healthier fare.

A potential takeover comes as the escalating trade war fuels speculation China could turn to consumer boycotts as part of its pushback against U.S. President Donald Trump’s tariffs.

Yum China’s same-store sales fell 1 percent in the most recent quarter, and the company said its large scale is a factor holding back growth. Still, Yum China has said it’s not backing off its expansion plan and is targeting 20,000 stores long-term.

“It’s the right thing to do, given our leadership in the market, and our ambition to maintain the leadership and market share in the long run,” Chief Executive Officer Joey Wat said on a call with analysts earlier this month. “The China market is still a growing market. It still has a lot of opportunities.”

Bloomberg

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

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  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.