Board of Yum Brands gives greenlight to spinoff plan of its China operations

A customer walks out of a KFC restaurant in Shanghai, China, October 9, 2015.[Photo/Agencies]

Yum Brands Inc－the sprawling fast-food empire that owns KFC and Pizza Hut－said its board had approved the spinoff of Yum China. Muktesh Pant would resign as CEO of Yum's China division on the completion of the spinoff and will then act as CEO of Yum China.

In other moves, the company said Jonathan Linen would depart from the group's board and audit committee and will become a member of Yum China board. Linen's resignation from the parent company's board and appointment to Yum China's board will be effective on Oct 12.

Yum Brands, which operates more than 7,200 restaurants in China, also announced an increase in the company's dividend. The latest payout represents an 11 percent increase on the company's previous quarterly dividend of $0.46 per share.

Yum said the spinoff of Yum China was is on track and expected to be completed by Oct 31.

Earlier this month, Yum Brands agreed to sell a combined stake, which was valued at $460 million in its Chinese operations, to Primavera Capital Group and Ant Financial Services Group, a deal that sets the stage for a spinoff of the business into a separate company next month.

Primavera, a Chinese private equity firm, will invest $410 million in the spinoff. Ant Financial, an affiliate of e-commerce giant Alibaba Group Holding Ltd, will put $50 million into the business.

Primavera founder Fred Hu, the former Goldman Sachs Group Inc chairman in charge of its business in China, will become chairman of the new company, which will be called Yum China.

Ant Financial operates the widely used Alipay mobile-payments platform. The firm will assist with an electronic payment system that will work across the restaurant brands.

Jason Yu, general manager of Kantar Worldpanel China, said the investment would not bring material change to the day-to-day running of the fast-food chains.

"Western fast-food chains still have more users than any other Chinese restaurants and they are also rapidly adapting to the 'new normal' by reforming their menus and transforming their customer experiences," said Yu.

"There are always different meal occasions that McDonald's and KFC can introduce despite the increased level of competition," he said.

"With their strong brand awareness and wide coverage, they stand to gain the most from China's urbanization－especially with more migration to county towns and the extension of city boundaries－provided they can keep changing to adapt to the evolving consumers tastes."

The fast-food restaurant operator continues to dominate China's fast-food space, boasting twice as many KFC restaurants as McDonald's and five times as many Pizza Hut outlets as Papa John's and Domino's combined. Yum is also considering testing its Taco Bell brand in China.