Investment firms explore buyout of Yum China - sources

By Kane Wu and Julie Zhu

HONG KONG (Reuters) - Investment firms are exploring a buyout of Yum China Holdings Inc. in what could be one of Asia's biggest M&A deals this year, sources close to the situation told Reuters.

Yum China, which had a market cap of $13 billion as of its closing price on Monday, was spun off from the KFC and Pizza Hut owner Yum Brands! Inc in 2016 and later listed on the New York Stock Exchange.

The firm itself has been discussing internally about switching to the Hong Kong bourse for a listing, because of the city's proximity to the Chinese market, potentially higher valuation and its convenient timezone for executives, a separate source with knowledge of the plan told Reuters.

Chinese investment firm Hillhouse Capital Group is planning to lead a consortium to buy the KFC and Pizza Hut operator in China, said four of the people. The firm, which has received commitments of over $10 billion for a new fund, has tapped lenders for potential financing of the deal and other investors to join them in the bid, two of them said.

Yum China's shares rose as much as 7 percent on Monday.

Global investment house KKR & Co and Hong Kong-based regional firm Baring Private equity Asia are also weighing up investing in the buyout, according to two sources, who added that no final decision has been made.

Bloomberg first reported on investors in the Yum China buyout on Tuesday. The report said Chinese sovereign fund China Investment Corp (CIC) and DCP Capital, the investment firm run by former KKR & Co. senior executives, are part of the Hillhouse consortium, adding that Primavera Capital Group, a current investor in Yum China, could also join the bidding group.

Reuters could not independently verify if the investors are all working as one bidding group. A separate source with knowledge of the situation said there could be more than one consortium of bidders.

A spokesman for Yum China said the company does not comment on market rumours or speculation when asked about the buyout intent and the Hong Kong listing plan. Yum Brands did not immediately respond to a request for comment.

Hillhouse and Baring declined to comment. KKR, CIC, DCP and Primavera did not immediately respond to requests for comments.

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. Ant declined to comment.

Two sources said a KKR-led consortium, which included Baring, CIC and Chinese investment firm Hopu Investments, had discussions with Yum Brands! about taking a controlling stake in its China business two years ago but failed to get a deal done.

Yum China shares are down 15 percent this year but its Monday's closing price - $34.22 per share, is still above its listing price at $24.51 on Nov. 1 2016. It has lost about $1 billion in market cap since reports about the potential buyout first came out in late July.

Its second-quarter net income increased 13 percent year-on-year but Pizza Hut continued to face challenges in China's competitive casual dining space, its CEO said on Aug. 1.

Former Yum China chairman and chief executive officer Sam Su, who was pivotal in the company's expansion in China, now serves as an operating partner at Hillhouse Capital.

(Reporting by Kane Wu and Julie Zhu; editing by David Evans)