Yum! Brands, Inc. (NYSE: YUM) announced today that it has agreed to purchase for $183 million plus the assumption of $25 million in certain debt and liabilities, the remaining 50 percent interest of its 541 Pizza Huts in the United Kingdom from Whitbread PLC, its long-time joint-venture partner.
Whitbread has decided to refocus its business to the hospitality and leisure sectors. The transaction is expected to close in the fourth quarter pending regulatory approval and other customary closing conditions. The company plans to finance the purchase with additional debt. For the full year 2006, the company continues to expect EPS of at least $2.83 or 11 percent growth.
While recent sales trends for Pizza Hut U.K. have been soft, we believe in the long-term growth potential of this market,” said David C. Novak, chairman and chief executive oficer, Yum! Brands, Inc. “We are very pleased with this acquisition and plan to recoup much of this investment through refranchising.”
In early June, Alasdair Murdoch, a long-time Pizza Hut veteran, was appointed as managing director of Pizza Hut, U.K. Murdoch most recently led the turnaround and growth of the Pizza Hut business in France. He previously served as operations director for Pizza Hut in the U.K., where he successfully introduced the Pizza Hut Home Delivery business and improved operations excellence. Once the acquisition is complete, Murdoch will report to Graham Allan, President of YRI.
“Alasdair Murdoch is an impressive leader who knows how to get excellent sales and profit results, and I am confident he will take our Pizza Hut business in the U.K. to the next level,” said Allan. “This acquisition is consistent with our strategy of driving profitable international growth, enabling us to build scale and produce excellent returns over the long term.”
For the past five years, through 2005, Yum! Brands’ Pizza Hut U.K. business has experienced compounded annual operating-profit growth in local currency of 14 percent and system-sales growth in local currency of 9 percent.
In addition to the 541 Pizza Huts in the joint venture between YUM and Whitbread, there are 125 Pizza Hut restaurants in the United Kingdom, which are owned and operated by franchisees. Over the next several years, the company expects to substantially reduce its equity ownership of the 541 Pizza Hut restaurants from this deal through refranchising to new and existing franchisees. YRI’s franchise-dominant model will remain the target ownership structure.
Full-year 2006 guidance for Yum! Brands will be updated when the deal is complete.
