Yum Holds Talks With KKR, Others on China Business Stake Sale

Yum Brands Inc. is considering selling a stake in its Chinese operation as part of a plan by the restaurant giant to spin off the once-fast-growing business.

Louisville, Kentucky-based Yum, owner of the KFC, Pizza Hut and Taco Bell restaurant brands, has started discussions with several financial firms about selling a stake in the business that could approach 20%, according to people familiar with the situation. The business could be worth something in the neighborhood of $10 billion in total, according to one of the people.

Those exploring offers include KKR & Co., Baring Private Equity Asia and several Chinese funds, according to the people. Interested investors have floated a number of proposals, but Yum appears focused on selling a 19.9% stake to avoid a big tax bill. It is possible interested parties could form one bidding consortium or more.

Yum, which has a market value of $32 billion, announced the plan to hive off its China operations in October. The idea is to insulate the company from turbulence in its China operations stemming from food-safety scares, stronger competition and other headwinds. As part of the plan, the China business would pay its ex-parent for the brand rights to KFC, Pizza Hut and Taco Bell, which isn't yet in the country.

Yum, which plans to complete the China spinoff by the end of 2016, hasn't publicly discussed the possibility of selling a stake. Yum initially plans to list the new China company on the New York Stock Exchange, company executives have said. At some point later, the new entity is likely to either have a dual listing on the Hong Kong stock exchange or to fully migrate there, the executives have said.

According to one of the people, Yum is seeking a so-called anchor investor as a first step in spinoff process, who among other things could add China know-how and make the stand-alone company more attractive to other shareholders. The discussions with potential investors are at an early stage and Yum may not reach agreement with any parties, some of the people cautioned. The spinoff is expected to proceed with or without an anchor investor.

A Yum spokeswoman declined to comment on any potential stake sale. "We continue to make good progress since we announced the transaction separating Yum and Yum China into two powerful, independent, focused growth companies," she said in a statement. "We will provide updates on the transaction at appropriate times."

P.R. Venkat, Laurie Burkitt and Matt Jarzemsky contributed to this article.

(By Rick Carew, David Benoit and Dana Mattioli)