Yum Brands has agreed to sell its Pizza Hut business for approximately US$2.7 billion, as the brand’s underperformance has been dragging down results.
The divestment will be made through two separate transactions. Pizza Hut, excluding Mainland China, will be acquired by private equity firm LongRange Capital for approximately US$1.5 billion, with Yum having the opportunity to receive a US$75 million earn-out by 2030.
Meanwhile, Pizza Hut in Mainland China will be acquired by Yum China for US$1.2 billion. This deal will allow Yum China to move from an exclusive licensee to the brand owner in the market.
The sale follows a comprehensive review of strategic options for the chain that commenced last November.
Management determined that the sale provides the strongest path to maximize shareholder value while providing Pizza Hut with an ownership structure tailored to its distinct markets, competitive strengths, and long-term priorities.
“These transactions enable Yum to be a more focused company that continues to leverage scale, technology and talent to deliver sustained value for our stakeholders,” said Chris Turner, CEO of Yum Brands.
“Under LongRange and Yum China, Pizza Hut will be well positioned for future growth with ownership that brings deep expertise in the restaurant industry,” he added.
Across the two transactions, Yum expects to receive approximately US$2.3 billion of net proceeds after taxes, closing adjustments and transaction-contingent fees, excluding the earn-out. It also expects to incur one-time expenses of approximately US$85 million during the remainder of this year to effectuate the separation.
Removing the ‘weak link’
GlobaData MD Neil Saunders said the decision is rational and gives Yum a much cleaner portfolio, allowing it to dedicate more time and resources to the units that are capable of delivering good returns.
“Pizza Hut has long been the weak link in Yum’s portfolio,” he said. “Despite efforts to revitalize the brand and shut underperforming locations, it has become increasingly clear that pushing the division back into growth will require a level of investment and patience that Yum is just not prepared to commit to.”
Pizza Hut has dragged down the otherwise solid group results, clouding the good numbers from KFC and Taco Bell.
In the latest quarter, Yum Brands delivered worldwide system sales growth of 6 per cent, primarily driven by a 6 per cent increase at KFC and 10 per cent uplift at Taco Bell. The Pizza Hut business remained flat during the period.
According to Saunders, Pizza Hut has lost a significant amount of market share to Domino’s across many areas, including menu innovation, marketing, ordering technology, and delivery infrastructure.
Regarding dine-in, he said the chain has become less popular with casual diners who prefer more balanced menus and a more contemporary environment.
“Both of these things have pushed Pizza Hut down diners’ consideration lists. This is the problem that Yum failed to remedy and that LongRange Capital will now need to tackle,” the analyst said.
This article was first published on Inside Retail.
