Restaurant chain operator Little Sheep Group Ltd said on Tuesday that China's Ministry of Commerce (MOFCOM) had given the green light to a buyout bid by parent Yum Brands Inc , sending shares of the hot pot chain to an all-time high.
"The market was not sure whether the deal could go through eventually, and the news removes that uncertainty," said Ample Finance Group Director Alex Wong. "It impacted the stock in a positive way.
Continue Reading Below
"As a major deal involving high-profile listed companies, it (the approval) suggests the Chinese government is not shutting the door on such deals," Wong added.
Shares of Little Sheep rose to an all-time high of HK$6.40 on Tuesday morning. At the midday trading break, the shares stood at HK$6.37, up 15.2 percent and outpacing a 0.65 percent gain by the benchmark Hang Seng Index .
Global food operators wanting to enter the China market have had to tread carefully in recent years. Coca-Cola Co launched a $2.4 billion bid for Chinese juice producer China Huiyuan Juice Group Ltd in 2008, but the deal was blocked the following year by the government on competition concerns.
In a filing to the Hong Kong bourse on Tuesday, Little Sheep said the proposal was cleared by the ministry under China's anti-monopoly law on Monday, and that further statements would be made soon to notify Little Sheep shareholders of the timetable for the transaction.
For statement click http://www.hkexnews.hk/listedco/listconews/sehk/20111108/LTN20111108007.pdf
Little Sheep said last month that the Ministry of Commerce had extended its anti-trust review of Yum's buyout bid, amid concern that it might not easily win the approval of the Chinese authorities.
Yum Brands, parent of the KFC, Taco Bell and Pizza Hut fast-food chains, in May offered to buy out Little Sheep at HK$6.50 ($0.835) per share in cash for $586 million, paying a premium to introduce the popular hot pot chain to a global audience.
Analysts said the deal was positive for Yum Brands as it expands in China and for Little Sheep, which has more than 300 hot-pot restaurants, primarily in China, as it would help save costs.
Little Sheep had said China's highly fragmented restaurant industry had seen competition intensify in recent years, and going private would reduce its exposure to market volatility and give it quicker access to growth capital. (Editing by Chris Lewis)