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Now that Yum Brands has decided to spin off its volatile China business, odds are against the restaurant company becoming a takeover target, two analysts predict.
"We would think it makes it less likely because the company will be getting a higher valuation and will be taking on appropriate debt leverage," said David Palmer, restaurant and packaged food analyst and managing director at RBC Capital.
Palmer expects the company to pass this extra cash pass back to shareholders.
Earlier on Tuesday, Yum Brands announced it would split into two separate, publicly traded companies and spin off its China unit as a franchisee.
Once the split happens, Yum Brands will become more of a "pure play" franchisor with at least 95 percent of its locations owned and operated by franchisees by the end of 2017. That enables it to have more consistent earnings and free cash flow and will provide a balance sheet on par with highly leveraged restaurant franchise companies.
Currently, Yum Brands is about 77 percent franchised including its China operations. Excluding China, that number rises to roughly 90 percent.
"Never say never, but you've seen a significant action by the company now so I'd put the [takeover] odds at less than 50-50," said Mark Kalinowski, a restaurant analyst at Nomura. "In some ways, the best takeover targets are the ones that haven't taken action because there's more you can do with it."