PE-backed Yum China gains on US debut after spin-out
Yum China, the private equity-backed group that operates KFC, Pizza Hut and Taco Bell in the country, gained 8% on its US trading debut after completing its separation from parent Yum Brands.
The stock opened at $24.24 on November 1 and closed at $26.19. The trading price over the two months following the spin-out will impact the shareholdings of Primavera Capital and Ant Financial Group - Alibaba's financial services affiliate - which agreed to invest $410 million and $50 million, respectively, in the company in September.
The two investors will buy their shares at an 8% discount to the average trading price over the aforementioned period, which means they hold a combined stake of 4.3-5.9%. They will also receive warrants for an additional 4% stake across two tranches at valuations of $12 billion and $15 billion. If fully exercised, those warrants would increase Primavera and Ant Financial's interest in Yum China to 10%.
"China presents an outstanding opportunity for high-quality restaurant concepts with unprecedented urbanization, a rapidly growing middle class, and ongoing investment in world class infrastructure. With exclusive rights in mainland China to the iconic global brands KFC, Pizza Hut and Taco Bell, ownership of two unique local brands, and a presence in more than 1,100 cities, we are well positioned to take advantage of this opportunity," Micky Pant, CEO of Yum China, said in a statement.
The company has more than 7,300 restaurants - including 5,087 KFC outlets and 1,643 Pizza Hut stores - with in excess of 400,000 employees across 1,100 cities in China. In addition to the local licenses for KFC, Pizza Hut and Taco Bell, it owns the Little Sheep and East Dawning dining concepts outright. By comparison, McDonald's has 2,223 outlets in China, while Starbucks has 2,171 and Ajisen Ramen has approximately 660, according to a Yum China presentation.
The company generated $6.79 billion in revenue for 2015, down slightly on the previous year, while net profit rose to $323 million, compared to a loss of $7 million in 2014. EBITDA has been reasonably consistent in recent years, reaching $998 million in 2015. For Yum Brands as a whole, revenue and net profit came to $13 billion and $1.3 billion, respectively, last year.
Primavera, which is said to be nearing a final close on its second US dollar-denominated fund, has longstanding ties to Ant Financial. It invested in Alibaba ahead of the company's IPO and also participated in Series A and B rounds of funding for Ant Financial. Fred Hu, founder of Primavera, is non-executive chairman of Yum China.
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