Strict Chinese antimonopoly laws behind Little Sheep’s delayed takeover by Yum
Yum! Brand Inc’s (NYSE: YUM) takeover of Little Sheep Group Ltd (HKG: 0968), the largest hotpot restaurant chain inChina, will be delayed by for two months (60 calendar days). Yum’s antimonopoly review byChina’s Ministry of Commerce is yet to be done and this was cited as the main reason behind the delay.
The acquisition plans were cemented in May 2011 when Yum agreed to pay HK$4.56 billion for the deal. A plan submitted by Yum to the Ministry of Commerce for an anti-monopoly review was accepted on June 27 this year. The move by the ministry however has all the undertones of a deliberate frustration of the whole process as the authorities have been wary of Yum’s monopolistic positioning in China’s fast food market.
The delay has had a direct impact on Little Sheep with its shares slipping by 13% on Wednesday. This was the lowest point since the deal’s announcement in May. Yum did not comment about the development.
China’s antitrust law stipulates that the first phase of the assessment of a case should last up to 30 calendar days. However, the Ministry of Commerce can opt for a second phase that can last up to 90 calendar days, which could further be extended by 60 more calendar days. As for the Little Sheep’s case, the 90-day second phase assessment ended on 25th October.
A senior official in the Ministry of Commerce, speaking with the 21st Century Business Herald said that the delay did not necessarily sound a death knell to the deal adding that this could simply imply that that Yum needed to hand over more documents. Yum’s 201o revenue from China stood at ¥33.6 billion while Little Sheep’s stood at ¥2 billion.
