CITY CENTER, KOLKATA, WEST BENGAL, INDIA – 2019/06/26: Pizza hut outlet at City Center Shopping Mall of Kolkata . (Photo by Avishek Das/SOPA Images/LightRocket via Getty Images)
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Shares of KFC and Pizza Hut Indian operator Devyani International rose as much as 5.3% after it announced plans to merge with rival franchisee Sapphire Foods India.
Yum! Brands owns fast-food chains like KFC, Pizza Hut and Taco Bell, and operates them in India through franchise partners such as Devyani International, Sapphire Foods India and Burman Hospitality.
The deal would combine the two major franchisee operators for Yum! Brands in India into a single entity, overseeing KFC and Pizza Hut in the country. While Devyani International did not confirm the deal size, Reuters reported that the transaction is valued at $934 million.
Under the terms of the merger, Devyani International will issue 117 shares for every 100 equity shares of Sapphire Foods India, the companies said in a press release.
Shares of Sapphire Foods India fell as much as 6.4% at the open.
The merger is expected to take effect within 12 to 15 months, subject to regulatory and shareholder approval. The companies said the deal would accelerate KFC’s expansion in the country and help revitalize Pizza Hut, which trails market leader Domino’s by a wide margin.
“India is a high-priority market for us” said Yum! Brands’ chief financial officer Ranjith Roy. He added that the country has abundant room for further growth.
The proposed merger would drive accelerated expansion and create “greater value for both shareholder bases” through improved supply chain operations, he said.
Devyani International, the largest franchisee of Yum! Brands in India, said it expects an annual “synergies” of 2.1 billion rupees to 2.2 billion rupees, or about $23 million to $25 million, starting from the second full year after the merger is completed.
Devyani operates more than 2,000 quick-service restaurant outlets across more than 280 cities in India, Nigeria, Nepal, and Thailand. Meanwhile, Sapphire operates 529 KFC and 338 Pizza Hut restaurants in India, along with 119 Pizza Hut and 11 Taco Bell restaurants in Sri Lanka, where it the the largest international quick-service restaurant chain.
“India has the potential to become a true crown jewel within Yum!’s global markets, and this announcement represents a significant step in that journey,” said Sumeet Narang, nominee director at Sapphire Foods India and Founder of private equity firm Samara Capital.
India has the third-highest concentration of Yum!Brand stores after the U.S. and China, according to the company’s most recent financial report.
