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Conference Code: 968989#
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KEY TOPICS WILL INCLUDE:
- Vulnerable to Activism – There has been a number of events over the past two years that suggest the timing is optimal for YUM to simplify its corporate structure. While there several different avenues of value creation, one thing is clear: YUM’s new corporate structure, multiple brands and underleveraged balance sheet almost ensure that the company is vulnerable to change. What remains to be seen, however, is if the new CEO will be proactive and effect change or be reactive to the changing marketplace.
- Transformational Transaction – For the better part of the past two years, management has been asked about a potential spinoff of the China business. In our view, this move would be the first step in a series of potential transactions that would simplify the structure and improve the operating performance of the company. We find it likely that a group of influential shareholders begin to push the board in this direction. It also makes sense to consider spinning off the dilutive Pizza Hut (co-owned stores) business, which would trade at a substantially higher multiple as a standalone entity.
- Multiple Ways to Win – The new global reporting structure of the company allows for a clean split of YUM's business units into multiple asset-light business models. We also believe there is an opportunity to increase leverage (to repurchase stock or pay a special dividend), cut excess SG&A, refranchise additional restaurants and command a premium valuation.