By Kane Wu
Fast-food chain operator Yum China Holdings Inc has rejected a $17.6 billion buyout offer from a consortium led by Chinese investment firm Hillhouse Capital Group, quashing what would have been one of Asia's biggest deals this year, a person with direct knowledge of the matter said.
The Hillhouse-led consortium, which would also include regional investment house Baring Private Equity Asia, expressed an interest to offer $46 per share, or nearly 24 percent above Tuesday's closing price, for the biggest fast-food chain in China, the person said.
Hillhouse had been tapping lenders to finance the deal, Reuters reported earlier this month, citing sources. Former Yum China chairman and CEO Sam Su, who was pivotal in the company's expansion in the world's second-largest economy, now serves as an operating partner at Hillhouse.
Yum China was spun off from Yum Brands! Inc in 2016 and listed on the New York Stock Exchange. It is the exclusive licensee of the KFC, Pizza Hut and Taco Bell brands in China with over 8,100 restaurants in more than 1,200 cities.
The offer did not include detailed terms or the structure of the investor consortium, and the board decided it provided no extra value or strategy for the business, the person added, requesting anonymity as the information is confidential.
Yum China declined to comment on rumours or market speculation but a representative said the company had potential to grow to 20,000 stores over the long term. Hillhouse and Baring did not respond to requests for comment.
Chinese investment firm Primavera Capital and Ant Financial Services Group bought a minority stake in Yum China for $460 million as part of the spin-off deal in September 2016. Both are still shareholders in the company.
Fred Hu, chairman of Primavera who is also the independent chairman of the Yum China board, did not immediately respond to a request for comment. Primavera has two Yum China board seats after the spin-off.
The Wall Street Journal first reported the rejection, citing an unidentified person familiar with the matter.
Global investment house KKR & Co had also considered investing in the buyout, Reuters reported earlier.
Stock of Yum China rose as much as 12 percent on Tuesday before closing 3.86 percent higher.
In addition to KFC, Pizza Hut and Taco Bell brands, Yum China also runs Chinese fast-food chain First East Dawning and hotpot restaurant Little Sheep which it acquired in 2012.
Yum was the first major Western fast-food company to enter China, opening a KFC store in central Beijing in 1987. Parent Yum Brands! currently collects 3 percent of KFC, Taco Bell and Pizza Hut China sales as royalties.
(Reporting by Kane Wu; Editing by Miyoung Kim and Stephen Coates)