Yum! Brands, Inc. (NYSE:YUM) spun off its Chinese operations into a separate listed company titled Yum China Holdings, Inc. trading under the ticker symbol “YUMC.”
The bifurcation of Yum into two companies is a culmination of a series of events over the past few months, including food scandals and marketing goof-ups in China, and pressure from activist investor Corvex Management, headed by Keith Meister.
Shares in Yum! Brands, Inc. (NYSE:YUM) fell 29.66% to $60.69 reflecting the segregation of the Chinese business. The spun-off unit Yum China Holdings, Inc. Common (YUMC) closed Tuesday at $26.19. The combined YUM Brands last traded on Monday October 31 at $86.28.
Yum! Brands, Inc. (NYSE:YUM) lops off, lists Chinese business separately
Yesterday, the leadership teams of Yum Brands and the spun off entity YUMC celebrated the new structure by simultaneously ringing the NYSE’s opening bell from New York and Shanghai.
“The successful separation of Yum China marks a major milestone in Yum! Brands’ history,” said Greg Creed, Chief Executive Officer of Yum! Brands in a statement. “We’ve established two powerful, independent companies that are each well capitalized with long runways for growth and value creation.”
As per the terms of the separation, each Yum! Brands stockholder received one share of Yum China common stock for each share of Yum! Brands common stock held as of the close of business on October 19, 2016. Fractional entitlements will be consolidated, sold in the market and proceeds paid proportionately to the shareholders.
Yum China will conduct its business in China as a licensee of Yum Brands.
Yum! Brands, Inc. (NYSE:YUM): Prospects of Yum China
The Chinese entity will be run from 7,300 locations across 1100 cities. It has $900 million in cash and is debt-free.
“Yum China’s listing will give U.S. investors one of their only opportunities to own a pure-play on China’s appetite for fast food, with a brand recognizable to U.S. consumers,” said Matt Kennedy of Renaissance Capital.
Meanwhile, Morgan Stanley initiated coverage yesterday on Yum China with an Overweight rating and a price target of $32, implying an upside of 22% from yesterday’s close.