Yum! Brands Inc., the parent company of Pizza Hut and Kentucky Fried Chicken, began making preparations Tuesday to split its China division from the rest of the U.S.-based company, Bloomberg news reported. The decision came following a series of health scares in China franchises as well as a general slowdown of sales in the region.
“What we wanted to do was a thorough and rigorous review of the options available to us and we tried to get down to one option we all felt would unlock the most shareholder value,” Yum chief executive Greg Creed told the Wall Street Journal Tuesday.
The lagging sales in China franchises followed from an overall Chinese slow-down, the Wall Street Journal reported. Chinese franchises made an effort to win over customers by adding more healthy options to the menu, but many customers chose to eat at one of many other franchises in the country, including McDonald’s and Starbucks, and menu changes did not bring customers back.
The China division used to be one of the most lucrative branches of the company, earning $5.6 billion in 2011, accounting for nearly half of the company’s revenue that year. Revenues have dropped overall since 2011, though the China division did account for 57 percent of revenue and 54 percent of profits in the last quarter, Reuters reported.
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Another motivating factor in the decision to separate the China division was a series of health scares. An avian flu outbreak spread in the company's fast food restaurants in 2012, and reports surfaced this past summer that one of the company’s Chinese suppliers was selling expired meat to the restaurants.
Yum Brands last week hired activist investor Keith Meister to be on its board of executives, spurring rumors that a U.S.-China split was already in the works, and Meister was reportedly the catalyst for the break.
Micky Pant, recently named executive of the China division, will lead the new spin-off company.