Chinese consortium plans to drop pursuit of Yum China

[HONG KONG]  A Chinese consortium including Hillhouse Capital is planning to drop its pursuit of a takeover of Yum China Holdings Inc., the US$14 billion operator of KFC restaurants in the world's most populous nation, people with knowledge of the matter said.

The investor group, which also included KKR & Co. and China's sovereign wealth fund, has decided not to continue pursuing a deal after its initial proposal was rejected, the people said, asking not to be identified because the information is private.

The consortium judged that Yum China's business conditions have worsened since its approach, limiting the scope for further negotiations, according to the people. It also deemed that a worsening macroeconomic environment and risks of a trade war between the US and China would make an acquisition more difficult at present, the people said.

Yum! Brands Inc. spun out the Chinese business about two years ago after losing market share amid changing tastes and increased local competition. China's biggest fast-food operator has struggled to attract younger diners to its Pizza Hut restaurants, despite overhauling its mobile app, upgrading its menu and enlisting celebrities to tout the U.S. brand.

DCP Capital and Baring Private Equity Asia were also part of the Chinese consortium, Bloomberg News reported earlier. Representatives for the investor group and Yum China declined to comment.

BLOOMBERG