Yum’s pizza pivot

Yum! Brands is slicing Pizza Hut right off the pie.

Today, the company announced that it agreed to sell the restaurant chain in a pair of deals worth roughly $2.7 billion. Private equity firm LongRange Capital will acquire most of the business for about $1.5 billion, with the potential for an additional $75 million earnout by 2030, while Yum China will purchase Pizza Hut’s operations in mainland China for roughly $1.2 billion. Yum expects to close the transaction in Q3, and will incur an estimated $85 million in one-time expenses related to the sale.

A new menu

Pizza Hut used to be the king of pizza chains, but it has become a smaller piece of the pie after losing ground to Domino’s and other delivery-first rivals, as well as third-party apps like DoorDash. While Yum’s revenue has surged nearly 50% since 2019, Pizza Hut’s sales have remained stuck around $1 billion for the past six years. Now, Yum is cashing out and doubling down on its higher-growth brands like Taco Bell and KFC (the latter of which is currently getting a makeover).

Part of the proceeds will also be used to fund Yum’s technology ambitions. The company has been building out Byte by Yum!, a platform for AI-powered drive-through ordering, call centers, and restaurant operations, backed by Nvidia, Amazon, and Microsoft.

Recipe for growth

Shares rose 1.96% after the announcement, as analysts welcomed the company’s decision to move on from a brand that has struggled to keep pace with the rest of the portfolio. Morgan Stanley upgraded the stock to Overweight earlier this month, saying the sale improves the company’s financial profile, while its tech investments are still underappreciated by the market.

For the…tens of Pizza Hut fans out there, the sale may feel like the end of an era. Wall Street, meanwhile, sees $2.7 billion of fresh dough for Yum’s next chapter, and investors are happy to take a slice.—SY