Yum Brands, the owner of KFC, Pizza Hunt and Taco Bell, announced Tuesday it's preparing to split its China division from the rest of the company in an apparent acknowledgement that attempts to revive the chain in China have largely failed due to a series of health scandals that have damaged the company's reputation.
Yum will now trade as two separate companies: Yum Brands and Yum China, which will operate under a franchise agreement and be run by a predominantly Chinese leadership team, reported CNN. However, it's not immediately known how much money the new company will pay its parent company as a franchisee.
"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.
Yum said it expects the split to be completed by the end of 2016. Keith Meister, an activist investor, had been pushing for a reorganization over the past few months and was appointed to Yum's board last week.
"The separation of these two businesses gives shareholders the choice to own a growing annuity-like franchise cash flow stream, as well as the leading restaurant concept in a country with the fastest-growing consumer class," Meister told Reuters.
China, whose revenue accounts for 57 percent of the company's total earnings, had been the primary focus of Yum's plans for growing the fast food staples it owns. It currently has more than 4,800 KFC and 1,700 Pizza Hut outlets in the country and had plans to build hundreds more.
However the brand has been hit by multiple scandals over the quality and safety of the food it sells at KFC outlets in the region, which has hampered its plans.
In 2012, a state media outlet accused local KFC suppliers of cramming extra antibiotics into their chickens, while in 2014 Yum was found to be selling tainted meat at KFC locations.
While it took the better part of a year for Yum to recover from its first scandal, it never fully recovered from the second. Now, the company expects same-store sales to end 2015 in the red.
The company admits its China revival was far more difficult than originally expected.
