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Keith Meister Wins Yum Battle: Company Will Split In Two

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Keith Meister Wins Yum Battle: Company Will Split In Two
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  • Shares of Yum! Brands, Inc. (NYSE: YUM) bounced off its 52-week lows of $66.35 following the appointment of Keith Meister to its Board of Directors.
  • The activist investor (and shareholder) has previously called on the company to spin off its China business.
  • Yum Brands announced on Tuesday it will split itself in two: Yum! China and Yum! Brands.

Shares of Yum Brands tumbled to a 52-week low of $66.35 following its third quarter results that left analysts mixed.

The stock quickly rebounded from its lows and traded higher after the company announced that activist investor and notable shareholder Keith Meister has been named to the company's Board of Directors.

Meister is the founder of Corvex Management and is one of Yum Brand's five largest investors. He has previously called on the company to split itself in order to create shareholder value.

Speaking at the Sohn Investment Conference back in May, Meister suggested that separating the business could create an additional value of $16 per share. A completely separate entity that focuses solely on China could be "levered to the endless growth of the Chinese middle class."

Ask And You Shall Receive

Yum Brands announced on Tuesday that it will separate itself into two independent, publicly-traded companies: Yum! China and Yum! Brands.

The company noted in its press release that Yum China will have an "attractive" investment profile and "significant opportunity" for growth. The new company will consist of the three major brands (KFC, Pizza Hut, and Taco Bell) and is not expected to carry any "significant" debt and will be adequately financed to invest in the business. Moreover, the new company is expected to expand to 20,000 restaurants in China from the approximate 6,900 restaurants today.

Meanwhile, Yum Brands will focus on "expanding the presence and performance" of KFC, Pizza Hut and Taco Bell around the world. The new company will have an "extremely attractive business model, with "stable" earnings, high profit margins, low capital intensity, and strong cash flow conversion."

The company also announced that in conjunction with the split, it will return "substantial" capital to shareholders. Management will provide additional detail during its Analyst and Investor Day presentation on December 10.

The transaction is expected to be completed by the end of 2016 and is intended to quality as a tax-free split.

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