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Yum! opts for a Chinese spinoff

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Yum! Brands said today that it will spin off its ailing Chinese operations into a separate publicly owned company, Yum! China.

The newly created concern will operate units of KFC, Pizza Hut and Taco Bell on mainland China as a franchisee of Yum! Brands. The 6,900-unit operation will be led by Micky Pant, currently CEO of what is the Chinese division of Yum! Brands.

In announcing the spinoff, Yum! Brands said the new concern would be debt-free and a company with exceptional cash flow. It also asserted that Yum! China could easily grow to 20,000 units, which would make it one of the world’s largest restaurant companies.

“Yum! Brands will have a more stable earnings stream typical of a franchise company powered by industry-leading brands, while also benefiting from the development of the China business as a unique growth engine,” Yum! Brands CEO Greg Creed said in a statement.

Yum! Brands was one of the first U.S. restaurant companies to enter China, starting with KFC, which is more of a luxury brand there than it is in the United States. Pizza Hut functions more as a casual restaurant, with a delivery arm called Pizza Hut Home Service.

Taco Bell does not yet have a presence in the market, but Yum! Brands has cited the growth potential for the Mexican brand in China.

Yum! also runs a Mongolian “hot pot” brand in China, called Little Sheep, but has written down those assets, signaling a likely sunset for that brand.

The spinoff had been expected since Yum! Brands announced the addition to its board last week of Keith Meister, managing partner of an investment firm that holds a 5 percent stake in the restaurant franchisor and a proponent of a breakup.

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