KFC's owner to fully control Chinese hot-pot chain Little Sheep

16:04, April 28, 2011      

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File photo: Chinese hot-pot chain Little Sheep

Yum Brands Inc., owner of the KFC fast food brand, plans to further increase its stake in Little Sheep Group, a popular hot-pot chain in China, according to a vague announcement issued by Little Sheep on April 26.

Reporters learned from a proposal Yum Brands submitted to the Securities and Exchange Commission that it is indeed seeking to take full control of Little Sheep.

"It is just a preliminary proposal," Yum Brands said, adding that any formal offer will depend on regulatory approvals, and that there is no assurance the acquisition will succeed.

Little Sheep declined to comment on Yum Brand's acquisition plan.

"Yum Brand's purpose is to develop a new profit growth point," said an experienced Chinese mainland restaurant industry insider who declined to be named. The insider added that according to China's Anti-monopoly Law, Yum Brand's acquisition will be subject to the inspection of the Ministry of Commerce.

Why did the major shareholders of Little Sheep want to sell the company?

What is the logic behind Little Sheep's merge with Yum Brands? Little Sheep is one of the top-100 restaurant chains in China, and recorded considerable revenue last year. Furthermore, Little Sheep Chairman Zhang Gang told the media in 2010 that the management "had no reason to sell controlling stake."

The Possible Way, the largest shareholder of the Little Sheep, is actually controlled by Little Sheep founders Zhang Gang, Chen Hongkai and Li Xudong. Therefore, it is impossible for Yum Brands to change the equity ratio of Little Sheep without a tacit agreement.

In fact, the executive management of Little Sheep has already revealed their intention of quitting. Lu Wenbing, president of Little Sheep, said that a company will reach its highest stage when it sells shares to make money.

Many private employers in China sell products or serve as OEMs (original equipment manufacturer) to make money at the initial stage, and then earned profits through branding, while the third stage is to make profits through selling the company and stocks. Lu revealed that Little Sheep experienced a fund shortage at the end of 2004.

However, banks did not provide the company with loans because catering enterprises belong to asset-light companies. Therefore, they could only increase investments to expand share capital.

The Yum Brands is considered as the "Father of KFC" and has nearly 38,000 restaurant chains in more than 110 countries and regions. By the end of March 2011, the Yum Brands had a total of more than 3,200 KFC restaurants, more than 500 Pizza Hut restaurants, more than 100 Pizza Hut Delivery companies, and 20 East Dawning restaurants in Chinese mainland.

Yum Brands Inc., owner of the KFC fast food brand.

By People's Daily Online

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