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Yum! Brands Splits In Two: Will Spin Off China-Facing "Bad Yum"
When just days after Yum! Brands saw its biggest earnings disappointment in years sending its shares cratering following Chinese results which cames orders of magnitude below expectations and leading to a major guidance cut, it appointed Icahn protege, activist investor Keith Meister to its board, many speculated that some major spin-off, or split of the company's China facing assets, was just a matter of time. And so it was, less than a week to be precise. Moments ago Yum! Brands announced its intention to split into two companies creating a publicly traded Yum! China or ("Bad Yum") which will contain the ongoing Chinese weakness, while keeping legacy Yum! Brands.
How this is good for the company in the long-run is anyone's guess, but at least it confirms that in the short run, China will get much worse before/if it gets better, as the 4% jump in the stock price confirms.
From the press release:
Yum! Brands, Inc. (YUM) today announced that it intends to separate into two independent, publicly-traded companies, each with compelling and distinct strategies and investment characteristics. The transaction will create two powerful, best-in-class companies, each with a separate strategic focus:
- Yum! China, a market leader with decades of accumulated consumer loyalty and world-class operations in China, will become a franchisee of Yum! Brands in Mainland China. It will have exclusive rights to three category-leading brands: KFC, China’s leading quick-service restaurant concept, and a favorite of Chinese consumers; Pizza Hut, by far the leading casual dining brand; and Taco Bell, which is expanding globally but is not yet in China, providing significant upside potential.
Yum! China will have an attractive investment profile and significant opportunity for growth. The Company is expected to have no significant debt, with substantial financial capacity to invest in its business. A favorite of China’s growing middle class, Yum! China has the potential to grow to 20,000 restaurants or more in the future from approximately 6,900 restaurants today. The business also has significant sales and profit growth potential in its existing restaurants, which the Company plans to capture over time by growing its core offerings and expanding further into new initiatives such as home delivery.
- Yum! Brands, one of the world’s largest restaurant companies with three iconic brands, will focus on expanding the presence and performance of KFC, Pizza Hut and Taco Bell around the world. These are three of the top ten U.S. and global QSR concepts. The Company will have an extremely attractive business model, with stable earnings, high profit margins, low capital intensity, and strong cash flow conversion. Yum! Brands will become more of a “pure play” franchisor over time, and is targeting having at least 95% of its restaurants owned and operated by franchisees by the end of 2017. It currently has a global base of over 41,000 restaurants, with approximately 2,000 new units being opened each year.
Yum! Brands is committed to returning substantial capital to shareholders in conjunction with the separation. This will occur as the Company transitions to a non-investment grade credit rating with a balance sheet more consistent with highly leveraged peer restaurant franchise companies. Moreover, this will allow for an ongoing return of capital framework that will seek to optimize the Company's long-term growth rate on a per-share basis. Further details will be discussed at the Company’s Analyst/Investor Day on December 10, 2015.
The Company does not expect to have incremental ongoing operating costs associated with operating as two separate, publicly-traded companies.
The Board’s unanimous decision to create two independent companies follows a rigorous review of strategic options conducted over the past year by Yum! Brands’ Board of Directors and management team, with the assistance of independent financial and legal advisors. The transaction is expected to be completed by the end of 2016 and is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes, with the legal structure and form to be announced at a later date.
Highlights of China Business after Separation
As an independent company, Yum! China will have a strong, predominantly Chinese leadership team and compelling growth profile in one of the world’s fastest-growing restaurant markets. The China business delivered annual revenue of $6.9 billion in 2014, and has a substantial free cash flow, with no significant debt, allowing it to focus and capitalize on the unparalleled growth opportunities ahead of it.
Headquartered in Shanghai, Yum! China is already the leading restaurant developer in China, with approximately 6,900 restaurants in over 1,000 cities. China’s consuming class is expected to double from 300 million in 2012 to more than 600 million people by 2020, providing a strong tailwind to the growth of Yum! China. The business remains on pace to open about 700 new locations in 2015 and is targeting expansion to over 20,000 restaurants in China in the future.
The China business is driven by strong brands that are integrated into the lives of Chinese customers:
KFC, the first quick-service restaurant chain to enter China, is today the number one foreign brand with approximately 4,900 restaurants in over 1,000 cities. The brand enjoys a footprint more than twice as large as its nearest competitor and is growing in Tier 1 to Tier 6 cities.
Pizza Hut Casual Dining, the first restaurant chain to introduce pizza and Western-style casual dining to China, is the number one Western casual dining brand locally with more than 1,400 restaurants in nearly 400 cities. The brand has been elevated with major menu revamps twice annually, and is supported by inventive marketing and digital technology, asset upgrades, and the introduction of breakfast, tea time snacking and late night.
Pizza Hut Home Service introduced pizza delivery to China in 2001 and now owns nearly 300 Pizza Hut Home Service units in 40 cities. While at an early stage, this business is a leader in the fast-expanding home meal replacement category and is positioned to accelerate development, while leveraging digital technology and third-party platforms.
Mr. Pant and his team will be focused on driving growth in the China business, and developing new strategies to address the Company’s business issues and opportunities. The team will build on significant competitive strengths, including an experienced local management team, a highly educated workforce, a dedicated real estate and development team, industry-leading media budgets, a country-wide distribution system, best-in-class operations, and dedication to innovation and product quality.
* * *
As for the biggest winner from splitting one "junk" company into two "junk" companies (judging by the jump in the stock price, the sum is less than the parts), it is none other than Goldman Sachs of course:
"Goldman, Sachs & Co. is serving as financial advisor."
Expect many other companies, especially in the luxury goods space, to follow in Yum's footsteps, now that Chinese exposure has become a liability after years of being an asset.
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More financial gimmicks to gloss over failures.
There is a provision for renaming an organisation legally, so will you like to click here to change your Ltd company name?
Heh heh....eat your fingers off.
Is that what chicken fingers really are? Yum! China or ("Bad Yum") Shouldn't they call it "Yuk"
Chinese Cramer say, "You buy! You buy now!"
You get chicken tender, taters and gravy, he'll throw in a bisket and big old cookie.
Sub Gum Yum, anyone?
will Jackie Chan play the next Colonel Sanders?
Kfc is just nasty!
The cheapest slimiest pieces of what they call chicken drenched in bleach with musli to cover it up.
I still remember the first time in Delhi that I ate that crap. After a trip of 3 weeks I was dreaming of typical western greaced food... and then I bought that...
First of all, there was a security guard outside because for the locals that was some expensive shit, we where the only customers and 10 seconds later I threw it in the bin.
Much like McDonald's, KFC was good a VERY long time ago. Both stopped serving what anyone rational would call food a long time ago. In the fabric pursuit of growth they have destroyed the product they need to grow in the fittest place. No amount of clever advertising and bringing back the colonel will change that. Unless they drop franchise fees and renegotiate leases to lower costs so they can put some money into the actual FOOD (a crazy concept for a restaurant, I know) they are going nowhere but down.
May they and McDonald's suffer the same fate. More business for Mom and Pop restaurants who have better food and whose profits are more likely to be spent locally.
BTW if any of yoga very a Church's Chicken in your neighborhood they destroy KFC. Pretty good stuff for a franchised chicken shack.
You think a bad asian restraunt uses msg - it's nothing like how much msg KFC now puts in and on it's chicken. Used to love it as a kid before they changed what they used. Bought some in the last year due to craving the old KFC but I also threw it away.
According to other articles I've read over the years, KFC in China is nothing like in America. They use locally sourced farm raised chickens, different spices, a lot more attention to quality control, and they made structural changes to include Chinese in the running and decision making from the get-go. So I wouldn't assume we can draw any conclusions about KFC China based on KFC USA. Also the article misses the point that it may not be just a economic move to split, it might be because structurally it is easier this way.
Special price! Now only! You my friend!
"It takes a hard man to make a chicken amorous!" -- Translation from English to Spanish and then back to English of "It takes a tough man to make tender chicken!"
Still doesn't touch "Bite the wax tadpole" (Coca-Cola) or Pepsi: "It brings your dead ancestors back to life!"
Someone forgot to tell dead-pig fancier Cameron that China is a liability today:
Cameron Falling Over Himself to Welcome China's Cash-Strapped XiBritain’s lavish state reception for Chinese President Xi Jinping is a dash-for-cash that shows how desperate the crumbling former empire is for foreign investment
http://russia-insider.com/en/politics/cameron-falling-over-himself-welco...
John Oliver Mocks ‘Noted Swine Fellatio Enthusiast’ David Cameron“Bizarre is a kind way of describing it,” he continued. “Because the actual allegation is that a dead pig’s head was resting in the lap of a dining club member, and then, and I quote, ‘… the future PM inserted a private part of his anatomy into the animal’s mouth.’ Yes, this book actually contains a claim that David Cameron, prime minister of the U.K., once put his dick in a dead pig’s mouth. And look, this is just the word of a single source published in an unauthorized biography; we do not know if this is true. But please, please let it be true, because a prime minister receiving oral copulation from a dead pig hits the perfect sweet spot between one of the most horrific things ever and one of the most amazing things ever.”
http://www.thedailybeast.com/articles/2015/09/28/john-oliver-mocks-noted...
so there will be YUM and SCUM or perhaps CHUM?
I'm thinking CHUM: Chinese Yum.
I'm thinkin krill.
I always love the way the investment bankers advise these firms get super big, then advise they split into smaller firms, then give it 5-10 years get the smaller companies to merge once again.
Shaeholders, ie patsies, always pick up the bill in a subtle transfer of wealth.
Obesity and diabetes... YUM!
I shifted my clients from oil to pharmaceutical insulian......about a year ago.
It's gold man.
Will the US YUM dump all their debt onto the Chinese YUM like Pepsi originally did?
take another bonus boyz
Chinese offers many different type of fast food shops. They are much more delicious and healthier than these western piece of shit obese food. I can easily have a bowl of wanton noodle than this obese hormone injected shit and still cheaper.
Or how about the chemical soaked cardboard, a chinese speciality https://www.youtube.com/watch?v=svPWuEFjtNI
Food made in China is toxic ... makes you bleed from your butt hole.
how do they even exist?
Will be good for a solid green day ....up on Yum...China growth....blah blah..it will be spun..
They should rename the brand to H5N1 or SARS Yum.
Aren't all restaurants Taco Bell?
Give it some more time.
Chinese go bobbing for bloated animal carcasses in their polluted rivers .... Yummy ?
The shit stain from the Yellow river .... can be seen from outer space ?
In Nanchang it was 4 lines of customers, eight deep. KFC was the "go to" place for lower middle class folks. How are they not making money? Perhaps some Chinese execs are skimming? Gasp!
Franchise fees are paid based on total sales, and in theory this can be monitored by materials costs. But this is China, so I can pretty much guarantee that they make those materials stretch out a bit, get materials from non-official suppliers and fudge the books in terms of waste and off-the-books sales all to skim as much as they can get away with.
And once a few start doing it and don't get caught, they all do it and it just becomes the new norm until someone innovates a new way to cheat. This is China.
The old Bad Chicken Good Chicken structure is well known in the brothels of Shenzen.
...but is it Finger Lickin' Good?
Now that's a World Super Power!
I heard of Bloomberg yesterday that Europe is ten years behind the US. My question is how many years behind China is the United States? I don't think very far. We have sped up our De-Democratization.
It's hilarious that essentially Yum will spinoff a less successful company which will cost Yum shareholders in some way ( most likely either dillution of shares, or holding an under performing spinoff) and the price of the stock is up.
A fool and his money..
YUM and YUC.
YUM and YUMer
Couple thoughts:
First, whoever wrote that press release must have had straight A's in his/her creative writing class (maybe it was a bot?).
Also, I keep telling my friends to do this. Spin off the wife/kids, instant positive cash flow and shining balance sheet. I keep telling them I'll handle the transition for a chubby (LOL) fee a la Goldman Sachs and line up suckers... er, investors. No takers so far, but, if Wall Street is doing it, why don't we all?
Harkens back to WC Fields, who (paraphrasing) said, "marry an outdoors woman, so when you throw her out, she'll be able to survive."
This should be the new narrative for Wall Street come mid-2016. Separation from China. They suck. Vote Donald. Dow 25,000! The Ponzi continues.
(buy silver)
More like Yuck Brands!
So... YUM! and YUK!?
Poisoning the world with their processed, antibiotic-crammed profit-maximizing, health-minimizing SHIT. FUCK YOU, YUM!!! BASTARDS!!!!!!!!!!!!!!!