Yum Shakes Things Up In China – Could A Spinoff Be Coming?

The endless speculation regarding YUM! Brands (YUM) China spinoff rages on despite management saying it’s not currently in the cards. The most recent fuel added to the fire was a sudden management shakeup in China. Long time company veteran and Chinese expansion mastermind Sam Su is retiring from his position as Yum China’s CEO after 26 years of leadership which saw the restaurant become one of the largest players in the Chinese market. Mr. Su, who will become an advisor until 2016 and remain on the board of directors, will be replaced my Micky Pant, the current CEO of KFC. There were some other leadership changes announced as well, including Joey Wat being promoted to CEO of KFC China and Peter Kao becoming CEO of the Pizza Hut brand in China.

Unlike in other parts of the world, Yum owns most of its restaurants in China, which is why the unit is so important to the overall company. Of course, it is also one reason activists are so keen to shake things up there and would prefer to see a structure where the China segment acts more like a franchisee. Activists, including Keith Meister’s Corvex Capital and Dan Loeb’s Third Point, have thrown the China spin idea out there. Sell side analysts have as well, including a JP Morgan analyst saying it’s more of a probability at this point. For its part, Yum spokesman Jonathan Blum responded with a simple ‘No’ when asked if the management changes in China were in preparation for a spinoff, but that doesn’t mean much.

This story has been going on for so long now that it feels tired, but it continues to excite investors. The big investors are probably waging a ‘behind the scenes’ campaign, but management has said that it is solely focused on improving operating performance and fixing the brand. Hard to argue that doesn’t drive shareholder value and the company has seen an improvement in same store sales. Of course, China is currently facing it’s own challenges now and how the economy and various companies react to a slower growing beast (if that is what is happening) remains to be seen. Perhaps a spin will be in the offering if performance continues to pick up. Ultimately, despite a lot of press, there is nothing doing right now. For some reason though I feel like this isn’t the end of the story for Yum…

Disclosure: Author holds no position in any stock mentioned.