Yum says it will sell stake in China unit ahead of spinoff
Sep 02 2016 by Johnny Bowman
The investors will receive warrants to buy an additional 4 percent stake in Yum China in two tranches at valuations of $12 billion and $15 billion, the company said on Friday. "The investment is a clear endorsement of our business strategy and growth potential, and their diverse experience and relationships will be extremely beneficial." .
Primavera and Ant will buy shares at an 8 percent discount to the average price at which Yum China's stock trades between 31 days and 60 days after they are distributed to Yum Brands' shareholders. Those tranches will reflect 2 percent equity ownership interest in the aggregate in each tranche, which can be used in the five years after the warrants are issued.
The spinoff is expected to be completed on October 31, with Yum China set to trade on the New York Stock Exchange the following day under the ticker 'YUMC'.
The deal includes a standstill agreement that prohibits Primavera and Ant from raising their stake in Yum China to above 19.9 percent.
Primavera was also an investor in Alibaba before its initial public offering as part of a financing package raised to repurchase half of Yahoo Inc.'s stake in Alibaba. Primavera is a private equity firm founded by former Goldman Sachs banker Fred Hu.
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"We have long admired the Yum China business and are looking forward to collaborating with the board and management to realize the company's full potential", Hu said in a statement.
The deal will also help Yum China and its restaurants provide mobile payment and data services. Brands will become primarily a franchised company while Yum China will be a franchisee. Mr. Hu's role in that deal and close relationship with Alibaba Executive Chairman Jack Ma won Primavera a coveted early investment in Ant Financial a year ago at a valuation below its latest $60 billion price tag. Between the two brands, Yum China has more than than 7,200 restaurants located in over 1,000 cities in the country.
It was unclear how big a stake the two investors would get in Yum China for the investment, or what value it puts on the Chinese division.
Yum China CEO Micky Pant said that he was excited about the investment since Primavera and Ant Financial have deep insights into the rapid urbanization and digital transformation, which is driving the evolution of China's economy.
Yum had been seeking a partner with deep Chinese business roots that could help the company continue to grow there.