Market Overview

Why Yum! Should Stick To The 'Original Plan' In China

Why Yum! Should Stick To The 'Original Plan' In China
Related YUM
Watch These 8 Huge Call Purchases In Wednesday Trade
3 Catalysts Drive JPMorgan's Downgrade Of Chipotle
McDonald's Focus on Franchise Model Will Drive Growth (GuruFocus)
Related MCD
Mid-Afternoon Market Update: Crude Oil Down Over 1%; Brookfield Canada Office Properties Shares Spike Higher
Mid-Day Market Update: Marinus Pharma Surges Following Preliminary Study Update; QUALCOMM Shares Slide
Sterling Investment Management, Inc. Buys Berkshire Hathaway Inc, McDonald's Corp, Sells ... (GuruFocus)

KKR & Co. and Chinese sovereign wealth fund China Investment Corp (CIC) have reportedly dropped their bid for a majority stake in Yum! Brands, Inc. (NYSE: YUM)’s China business. Reuters reported that Yum was not prepared to turn over a majority stake in its Chinese business at the price that the bidding consortium was offering.

Yum’s stock is up modestly following the news, and Bloomberg’s Nisha Gopalan believes that the company is better off without the consortium.

“What’s best for Yum China is probably the original plan: List the unit in New York and maybe Hong Kong too, rather than messing around with stake sales,” Gopalan wrote.

Related Link: Axiom: Stay Away From Mining Stocks

Despite ever-intensifying fast food competition from McDonald’s Corporation (NYSE: MCD) and others, Yum’s KFC remains the top Chinese fast food brand by market share. In 2015, KFC represented about 3.6 percent of the Chinese fast food market, down from 5.2 percent in 2010.

Gopalan said investors should look beyond Yum’s shrinking market share to the company’s same-store sales numbers, when were up more than 6.0 percent year-over-year in Q1. KFC’s same-store sales were up an impressive 12 percent on the quarter.

Gopalan believes a New York IPO of the China unit would be good news for Yum shareholders because it would provide the company with funding for a multi-billion-dollar share buyback; it would also allow Yum to maintain control over its Chinese business.

Disclosure: The author holds no position in the stocks mentioned.

Latest Ratings for YUM

Oct 2016Credit SuisseUpgradesNeutralOutperform
Oct 2016BarclaysMaintainsEqual-Weight
Oct 2016NomuraMaintainsBuy

View More Analyst Ratings for YUM
View the Latest Analyst Ratings

Posted-In: Analyst Color News Rumors Restaurants IPOs Analyst Ratings Trading Ideas General


Related Articles (MCD + YUM)

View Comments and Join the Discussion!