Yum China’s $1.2 billion purchase of Pizza Hut’s China business did not impress investors, sending the company’s shares lower in Hong Kong on Wednesday. The stock fell as much as 3.0% before closing down 2.6%, after also dropping 1.4% overnight in U.S. trading of its American depositary receipts in New York.
The deal gives Yum China control of Pizza Hut’s China operations, which it bought from parent company Yum Brands. Yum Brands has been dealing with years of sluggish sales growth and steadily shrinking margins at the pizza chain. Separately, Pizza Hut’s non-China global business was sold to private investment firm LongRange Capital in a deal valued at about $1.5 billion.
The transaction divided analysts. Citi analysts said they were somewhat disappointed, arguing that a sum this large should have been directed toward new brands or new markets that could improve margins. They warned that putting so much capital into an established brand like Pizza Hut, which is still recovering and faces heavy competition in China’s family-restaurant sector, could look too aggressive to risk-averse investors. They do not expect an immediate re-rating of Yum China’s valuation multiple.
Other analysts were more upbeat, saying the deal effectively frees Pizza Hut China and gives it room to innovate on menu, test new store formats, and better match changing consumer tastes. They also said the $1.2 billion price looks attractive given the chain’s fundamentals and long-term growth potential. In their view, Pizza Hut China’s operating profit is expected to triple by 2030, faster than management’s own targets.
