Yum China Rebuffs Offer of $17.6 Billion by Hillhouse-Led Group

Yum China Holdings the operator of fast-food chains rejected a buyout offer of $17.6 billion by a Hillhouse Capital Group led consortium. The rejection of the Chinese investment firm’s offer quashed what potentially would have been one of the biggest deals in Asia for 2018.

The consortium, which included Barring Private Equity Asia a regional investment house, was interested in offering $46 a share or close to a 24% premium on the closing price of Tuesday for the largest chain of fast food establishments in China.

KKR & Co. the global investment house and China Investment Corp. the sovereign wealth fund of China were part of the big consortium, one source added.

No immediate action is expected from the consortium and it could back off entirely from pursuing its bid any further, said sources. Hillhouse has spoken to lenders about financing such a deal, said sources.

Yum China spun off in 2016 from Yum Brands! Inc. and listed with the New York Stock Exchange. The company has the exclusive licensee rights for the brands KFC, Taco Bell and Pizza Hut across China with more than 8,100 restaurants and over 1,200 cities.

One of the sources said the offer did not contain any detailed terms or the makeup of the investor consortium. Yum’s board decided the offer did not provide extra value or strategy for its business.

The offer of $46 a share gives Yum China a value of 13 times earnings prior to EBITDA, which is slightly higher than that of McDonald’s Corp’s multiple of 12.6 but far less than the 20.8 of Domino’s Pizza Inc.

Yum China did not request a higher offer in its rejection letter.

Yum China announced that it would not make any comments on market speculation or rumors, but a company representative said Yum has the potential to expand to over 20,000 locations during the long-term.

Ant Financial Service Group and Primavera Capital the Chinese investment company bought a minority share of Yum China for over $460 million when the spinoff took place in September of 2016. Both remain shareholders.

Primavera received two board seats in Yum China following the spinoff and the Primavera chair Fred Hu is the Yum China independent chair.

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