Investors reacted favorably on the news that Yum China rejected a buyout offer that could have catapulted the restaurant operator to as much as $17 billion valuations. The company's shares were up 4.8 percent at $37.50 after news of its refusal broke out.
The upsurge came after months of the shares' erratic performance. It hit a close high of $48.18 in January and plunged to $32.30 in July. It remained in the $30 range in August up until the news of the rejected deal.
Yum China declined a buyout offer from a consortium led by the investment firm Hillhouse Capital Group that would have taken the company private at $46 a share. If Yum China agreed to the deal, the buyout would have been the largest of its kind in Asia and would have ranked as one among the biggest in the world according to The Wall Street Journal, citing data provider Dealogic.
The consortium, comprised of KKR & Co., Baring Private Equity Asia, China Investment Corporation, made the offer last month but was declined by Yum China in recent weeks according to sources who spoke with The Wall Street Journal exclusively. The offer was reportedly 42 percent higher than the company's share price at the time the deal was discussed.
All parties involved refused to comment as of press time but separate sources told Reuters that the board declined the tender because it did not provide any additional value or a new strategy for the restaurant operator. The sources added that Yum China did not negotiate for a higher offer and was not even clear about its reasons. A representative told Reuters that Yum China has plans of opening 20,000 stores in the coming years.
Yum China operates KFC, Pizza Hut, and Taco Bell in China and runs Chinese fast food chains First East Dawning and Little Sheep which it bought back in 2012. It currently has 8,200 chains across more than 1,200 locations and employed 460,000 people in 2016.
While investors reacted positively to Yum China's refusal to go private, analysts with Bloomberg believed the company should have accepted the money. They noted the restaurant operator's declining share prices and the challenge it is facing amid growing e-commerce industry and the escalating US-China trade war which shows no signs of stopping.
While Yum China integrated mobile payments into its platform and made it deliver 63 percent of sales, it has no impact on the declining share of the company, Bloomberg said. On the other hand, Hillhouse, which led the consortium that offered the $17 billion buyout, is a shareholder of Tencent Holdings and JD.com of which both have subsidiaries that specialize in e-commerce.
More so, Yum China will find itself at the receiving end of the escalating US-China trade war which could see customers boycotting brands from the United States. The buyout would have provided Yum China the cash power to overturn the looming impact of the trade war.
