Yum! Brands Inc. has gained the Chinese industry regulator's approval to take over leading domestic hot-pot chain Little Sheep Group Ltd. in a move that observers say will consolidate Yum!'s dominance of China's food service sector.
The Ministry of Commerce has cleared the deal under China's anti-monopoly law, both companies said Tuesday. The Hong Kong-listed Little Sheep saw its shares soar over 15 percent following the news.
Yum! is offering 6.5 HK dollars a share in cash to gain a 93.2-percent share of Little Sheep, with the remaining 6.8-percent stake to be held by the creator of the Chinese company. The privatization plan is still subject to the approval of Little Sheep shareholders.
The Louisville, Kentucky-based Yum!, which owns KFC and Pizza Hut, bought a 20 percent stake in Little Sheep in 2009 and raised the share-holding to 27.2 percent last year.
The market previously worried that the buyout would fail the anti-monopoly review, meeting the same fate as Coca-Cola's 17.9-billion-HK-dollar-bid to take over China's largest juice maker, Huiyuan, two years ago.
Little Sheep's shares stumbled 12.46 percent on October 26 when the ministry announced it would extend the anti-monopoly review.
"The buyout will definitely consolidate Yum!'s leading position in China's catering sector," said Feng Enyuan, secretary general of the China Cuisine Association, adding that it would be even harder for Yum!'s competitors to overtake it in the near future.
The association rated Yum! and Little Sheep as the top two market players in 2010. Little Sheep, which focuses on popular Chinese hot-pot, runs 3,000 restaurants in the country and reports an annual revenue of 2 billion yuan (about 315 million U.S. dollars).
Yum!, on the other hand, has nearly 3,500 KFC restaurants and about 560 Pizza Hut restaurants in China. Last year, the company's China division reported a revenue of 33.6 billion yuan.
Both Yum! and Little Sheep enjoy immense popularity among China's younger generation.
Hot-pot, a traditional Chinese dish, sees people sit around a simmering fondue-like pot into which they dip raw food such as meat slices, fish, vegetables and noodles to cook. Hot-pot is a New Year signature dish for many Chinese families in and outside China.
"Our research shows that hot-pot has considerable market potential overseas," said Samuel Su, CEO of Yum! Brands China Division. "With its global network and experience, Yum! is able to explore the overseas hot-pot market with Little Sheep."
But Su told reporters that Yum! would not change Little Sheep's business model in the short term.
Kang Jianhua, an analyst with China Investment Consulting, said the takeover will have an impact among market competitors and might accelerate a market shakeup in the food service sector.
The Ministry of Commerce has cleared the deal under China's anti-monopoly law, both companies said Tuesday. The Hong Kong-listed Little Sheep saw its shares soar over 15 percent following the news.
Yum! is offering 6.5 HK dollars a share in cash to gain a 93.2-percent share of Little Sheep, with the remaining 6.8-percent stake to be held by the creator of the Chinese company. The privatization plan is still subject to the approval of Little Sheep shareholders.
The Louisville, Kentucky-based Yum!, which owns KFC and Pizza Hut, bought a 20 percent stake in Little Sheep in 2009 and raised the share-holding to 27.2 percent last year.
The market previously worried that the buyout would fail the anti-monopoly review, meeting the same fate as Coca-Cola's 17.9-billion-HK-dollar-bid to take over China's largest juice maker, Huiyuan, two years ago.
Little Sheep's shares stumbled 12.46 percent on October 26 when the ministry announced it would extend the anti-monopoly review.
"The buyout will definitely consolidate Yum!'s leading position in China's catering sector," said Feng Enyuan, secretary general of the China Cuisine Association, adding that it would be even harder for Yum!'s competitors to overtake it in the near future.
The association rated Yum! and Little Sheep as the top two market players in 2010. Little Sheep, which focuses on popular Chinese hot-pot, runs 3,000 restaurants in the country and reports an annual revenue of 2 billion yuan (about 315 million U.S. dollars).
Yum!, on the other hand, has nearly 3,500 KFC restaurants and about 560 Pizza Hut restaurants in China. Last year, the company's China division reported a revenue of 33.6 billion yuan.
Both Yum! and Little Sheep enjoy immense popularity among China's younger generation.
Hot-pot, a traditional Chinese dish, sees people sit around a simmering fondue-like pot into which they dip raw food such as meat slices, fish, vegetables and noodles to cook. Hot-pot is a New Year signature dish for many Chinese families in and outside China.
"Our research shows that hot-pot has considerable market potential overseas," said Samuel Su, CEO of Yum! Brands China Division. "With its global network and experience, Yum! is able to explore the overseas hot-pot market with Little Sheep."
But Su told reporters that Yum! would not change Little Sheep's business model in the short term.
Kang Jianhua, an analyst with China Investment Consulting, said the takeover will have an impact among market competitors and might accelerate a market shakeup in the food service sector.
