Fast-food chain Yum China rejects $17.6 billion Hillhouse buyout offer: source

By Kane Wu

HONG KONG (Reuters) - 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 has 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.

The company is the exclusive licencee of the KFC, Pizza Hut and Taco Bell brands in China with over 8,100 restaurants in more than 1,200 cities.

The board decided not to pursue the offer, which did not include detailed terms or the structure of the investor consortium, the person added, requesting anonymity as the information is confidential.

Yum China, spun off from owner Yum Brands! Inc in 2016 and later listed on the New York Stock Exchange, did not have any immediate comment. Hillhouse and Baring did not immediately respond to a request for comment.

It was not immediately clear why Yum would have rejected the offer.

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.

Wall Street Journal first reported about 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)