Yum!’s Sale of Pizza Hut Draws Mixed Reactions

Last week, Yum! Brands (Louisville, Ky.) announced it had split up its Pizza Hut unit and sold the brand’s main business in the U.S. to private equity firm LongRange Capital for $1.5 billion, and its mainland China operations to its licensee and partner, Yum China, for $1.2 billion.

Yum! officials gave this rationale for the sales in a press release: “These transactions enable Yum! to be a more focused company that continues to leverage scale, technology and talent to accelerate our ‘raising the B.A.R. priorities’ and deliver sustained value for our stakeholders,” said CEO Chris Turner, who took the reins at the company last fall.

Analysts were split on the news. In its coverage of the deal, the financial newspaper Barron’s noted that a Morgan Stanley analyst team recently concluded that off-loading the struggling pizza brand would make Yum! an “even more compelling story” with a “cleaner and improved financial profile.”

On the other side of the coin, stock analyst The Motley Fool said while Pizza Hut is currently Yum!’s “smallest and worst-performing business” when compared to its two sister brands, KFC and Taco Bell, that might not always be the case.

“… Pizza Hut was a profitable business, so it was still adding to earnings. This [spin-off] looks like it may have been a move meant to appease Wall Street, which is myopically focused on the short term, rather than a strategic long-term choice to build a fundamentally resilient company,” TMF reported.

In any event, the sales are slated to close by the third quarter of this year.

Yum! Brands acquired Pizza Hut, KFC and Taco Bell in 1997 from PepsiCo, which had owned the pizza chain since 1977. It is now the second-largest pizza company in the world (behind Domino’s) with more than 19,000 restaurants in 108 countries and nearly $12.8 billion in total sales last year, according to its website.