Yum Brands (NYSE:YUM) jumped in morning trading after the restaurant chain unveiled plans to spin off its China business, after unsuccessful years in the world’s second-largest economy.
Shares gained 4% to $74.56 at 11:05 a.m. in New York.
When the transition is completed by the end of next year, Yum China will be a separate, publicly traded franchisee of Yum Brands, the Louisville, Kentucky-based company said on Tuesday.
Yum China, based in Shanghai, will pay its former parent company a percentage of its sales for exclusive rights to three of the company's brands - KFC, Pizza Hut and Taco Bell.
The split will allow Yum Brands to concentrate on reenergizing its stagnating business in the United States as well as grow in emerging markets such as India.
“Following the separation, each stand-alone company will be able to intensify focus on its distinct commercial priorities, allocate its own resources to meet the needs of its business, and pursue distinct capital structures and capital allocation strategies,” Greg Creed, the Yum Brands chief executive, said in the statement.
The split also followed pressure from activist investor Keith Meister.
Last week Yum announced that it had named Meister to the company's board of directors. Meister, managing partner of Corvex Management, had been among the most vocal proponents of spinning off the China business. Meister has a 5% stake in Yum.
Yum Brands entered China in 1987 through its KFC brand.
For years, the China business took the lead in driving sales for the company. However, over the past several quarters, sales have faltered as the business has been slapped with multiple problems ranging from a meat scandal to marketing missteps.
Earlier this month, Yum Brands said the pace of recovery in its Chinese business was below its expectations as the company reported weaker earnings than forecast by Wall Street.
Yum Brands has 41,000 restaurants in more than 125 countries and territories, the bulk of them franchised locations.