Yum spinning off its China operation attracted most attention, but the model of selling a well-established China operation is a model that can generate a lot of value, at least for the share-holders, says business analyst Shaun Rein in Bloomberg.
Yum China has issued 386 million shares at $24.36, which puts its valuation at around $9 billion, according to New Jersey-based research firm Edge Consulting Group.
“When their China operations get so big and are clearly catering just to the China market, splitting off could unlock a lot of value for shareholders,” said Shaun Rein, Shanghai-based managing director of China Market Research Group. “If I were an activist hedge fund investor, I would be looking at carving out brands within large conglomerates that are China plays.”
Doing so allows Yum’s management of the China business to tailor its operations and products more swiftly to changing local conditions, such as the menu preferences of diners in different parts of the country, mobile-based payments systems, hiring and other factors.
It also helps tap Chinese investors willing to pay high premiums for a stake of an international brand’s China operations. Yum sold a combined $460 million stake in its Chinese business to Primavera Capital Group and an Alibaba Group Holding affiliate, Ant Financial Services Group, in September.
In recent years, Yum has ceded market share to local competitors because it was slow to react to market changes, said Rein.
“They didn’t make corporate decisions quickly enough, such as in adopting mobile payments, or adapting to consumers wanting more premium offerings,” said Rein. “Their ability to deal with the more complex environment here was held back by the lack of knowledge, the slowness of the U.S.”
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