Primavera, Ant Financial to invest $460m in Yum China spin-out

Primavera will pay $410 million and Ant Financial, Alibaba Group's online financial services affiliate, will invest $50 million. The Yum China business will complete its spin-out from Yum Brands on October 21, and it will start trading on the New York Stock Exchange as an independent company on November 1. Primavera founder Fred Hu will become non-executive chairman of Yum China's board.

Primavera and Ant Financial will buy the shares at an 8% discount to the average price at which Yum China's shares trade over 31-60 days following completion of the spin-out. As part of the agreement, the two Chinese investors will receive warrants to buy an additional 4% stake in Yum China in two tranches at valuation of $12 billion and $15 billion. Those warrants will could increase the investors' ownership to 10% if fully exercised, according to a filing.

Following the transaction, Yum China will become a licensee of Yum Brands in mainland China, with exclusive rights to KFC, Pizza Hut and Taco Bell. The group already has more than 7,200 restaurants - primarily under KFC and Pizza Hut brands - in over 1,000 Chinese cities. More than 90% of KFC and Pizza Hut outlets in China are directly controlled by Yum Brands, compared to around 10% in international markets.

China remains Yum Brands' primary source of profit. Last year, the China division generated about $7 billion in sales and $1 billion in EBITDA. For the group as a whole, revenue and net profit came to $13 billion and $1.3 billion, respectively.

"Yum China is an established leader in the retail and restaurant industry which we believe is poised for continued strong growth and unit expansion as cities across China invest in new transportation hubs, shopping malls and other physical and electronic infrastructure that will support consumption," Primavera's Hu said in a statement.

Ant Financial plans to make mobile payment services including Alipay available in Yum China's fast-food restaurants, which will is expected to attract more customers, as well as help cut cashier waiting times.

Primavera was an investor in Alibaba Group ahead of its IPO in 2014. Last year, the PE firm invested in a Series A round for Ant Financial, and re-upped in a $4.5 billion Series B round in April this year at a valuation of $60 billion. The GP is said to be nearing a final close on its second US dollar-denominated vehicle. The first fund closed at $1 billion in 2011.

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• Topics
• Greater China
• Expansion
• Consumer
• China
• Primavera
• Alibaba Group
• Growth capital