Yum! Brands (YUM, quote) acquisition of Little Sheep Restaurant in China, following private equity buys by Morgan Stanley (MS, quote), is a bullish sign for the economy of the country and provides much-needed foreign investment.
China needs foreign investment, mergers and acquisitions and a robust private equity franchise for its economy to mature. The level of uncertainty that investors feel about many Chinese companies has affected many of the publicly traded stocks, whether right or wrong.
Having a blue-chip company with the presence of Yum! Brands — market cap of $25 billion — buy a Chinese restaurant chain is significant.
According to an article in The Wall Street Journal by Polly Hui and Laurie Burkitt, “China Clears Deal to Buy Little Sheep Restaurants,” Yum! Brands is taking the company private in a deal worth $860 million.
Yum! Brands already has a strong presence in China with its Pizza Hut and Kentucky Fried Chicken franchises.
What is also salutory about the deal is that is was approved by the Ministry of Commerce in China. Other deals have been voided by this government agency.
With growth falling in China, foreign investment, private equity deals and mergers and acquisitions will be useful for injecting new resources into the economy and its companies.
As Hui and Burkitt noted in The Wall Street Journal article, this is “one of the first successful takeovers of a major Chinese brand.”