Activist Daniel Loeb takes more than $1bn stake in Yum

The activist hedge fund manager Daniel Loeb has emerged as a shareholder in Yum Brands, in a development that could put pressure on the owner of Kentucky Fried Chicken and Pizza Hut to split off its Chinese operations.

Mr Loeb's Third Point Capital has taken a stake of more than $1bn in Yum, which is recovering from two food safety scares at KFC in China, and the activist has set out some of his prescriptions for the company in his latest letter to investors.

As well as operational and menu improvements at the company's US restaurant chains - including "more handheld chicken sandwiches, which are one of the fastest growing items on the American lunch menu" - Mr Loeb also suggested Yum could explore "an alternative ownership structure".

"We think investors should want to own Yum for its unique open-ended middle-class growth story in China and its strong and growing franchise-led cash flows outside China," he told investors.

"We also expect that Yum management, consistent with their prior public statements, will consider a variety of value-enhancing actions to ensure that the market properly rewards its investors for both compelling earnings streams."

Yum could spin off its Chinese operations in a flotation on the Hong Kong Stock Exchange, analysts including Stifel's Paul Westra have suggested. Some 6,700 of Yum's 41.500 restaurants are in China, and the country accounted for 52 per cent of the company's revenue last year.

Yum shares rose 4 per cent on news of Third Point's stakebuilding, giving the company a market capitalisation of $38.8bn.

Mr Loeb avoided the pointed criticisms of strategy and barbs against management that characterise his most aggressive campaigns, but he did serve notice on Yum chief executive Greg Creed that he expected improvements in the US at KFC and, in particular, Pizza Hut.

"Pizza Hut started as a casual dining concept and then expanded into delivery, but the complexity of doing both has the company operating at a competitive disadvantage relative to Domino's in delivery," he wrote.

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