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Yum! buys into Little Sheep

By Ding Qingfen (China Daily)
Updated: 2009-03-26 07:48

Yum! Brands Inc, the US catering group, said yesterday it agreed to buy a 20 percent stake in Inner Mongolia Little Sheep, China's leading hot-pot chain operator, for $63 million, becoming the second-largest shareholder in Little Sheep.

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This is the first investment deal for Yum! in China's catering industry, and presents win-win benefits for both sides, said insiders close to the deal.

Yum! will buy a 13.92 percent stake from UK-based venture capital firm 3i and the US' Prax Capital, and another 6.07 percent from Little Sheep's stake holders including its Chairman Zhang Gang, at a price of HK$2.4 per share, or an 8.4 percent discount to its closing price of HK$2.62 on Tuesday. The deal is expected to be completed this summer.

"The transaction is good for both," Wu Ruiling, deputy secretary-general of China Chain Store & Franchise Association, told China Daily.

As the world's largest restaurant chain, Yum! has 3,000 restaurants in China under its five brands including KFC, Pizza Hut, Taco Bell and East Dawning. China is Yum!'s fastest growing market, enjoying an annual double-digit growth by sales revenue. But the financial crisis has reportedly hurt local business.

"The deal would help Yum! enter into the hot-pot sector, which is promising and almost immune to the bad economic situation," said Wu.

Little Sheep, China's first restaurant chain listed in Hong Kong, has a 6 percent market share in China, according to researcher Euromonitor International.

The company posted a 41.2 percent growth in profit for 2008.