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September 3, 2016

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Yum to sell stake in China business ahead of spinoff

KFC and Pizza Hut owner Yum Brands Inc said Chinese investment firm Primavera Capital and an affiliate of Alibaba Group Holding Ltd will buy a stake in Yum China for US$460 million as it prepares to spin off the business.

The deal will give Primavera and Ant Financial, which runs Alibaba’s Alipay mobile payments platform, a combined stake of 4.3-5.9 percent in Yum China, depending on the share price.

Yum Brands said last October it would spin off the China business, which accounts for about half of its total sales, amid pressure from activist investor Keith Meister's Corvex Management.

Yum, still the largest fast-food chain in China, has been losing ground to McDonald’s Corp and local rivals in a sluggish economy. Both the US chains have sought to address challenges in supply chain control after a food safety scandal in China.

The spinoff is expected on October 31, with Yum China to begin trading on the New York Stock Exchange a day later, the company said.

Primavera will invest US$410 million while Ant Financial will put in US$50 million.

The investors will receive warrants to buy an additional 4 percent stake in Yum China in two tranches at valuations of US$12 billion and US$15 billion, the company said yesterday.

Primavera’s founder Fred Hu, the former chairman of Goldman Sachs China, will become non-executive chairman of Yum China’s board.

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.

The deal includes a standstill agreement that prohibits Primavera and Ant from raising their stake in Yum China to above 19.9 percent.

The Wall Street Journal first reported the news yesterday.

Goldman Sachs is financial adviser, while Wachtell, Lipton, Rosen & Katz are legal adviser to Yum Brands and Yum China. Simpson Thacher & Bartlett LLP and Fangda Partners are legal advisers to Primavera and Ant.


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