Restaurant Brands dives as takeover abandoned

Restaurant Brands shares have suffered their biggest decline in seven years after suitor CVC Asia Pacific abandoned takeover plans.

Shares in the fast-food company, which holds the New Zealand franchises for KFC and Pizza Hut, fell 9.3 per cent to close at $1.27 after CVC failed to come to a deal on the franchises with their brand owner, Yum Restaurants International.

The Australian private equity firm flagged its intention to make a $160 million takeover offer for the fast-food company in June. That hit a setback in July, when CVC said it could not go ahead within the time frames set out by the Takeovers Panel due to protracted negotiations with Yum.

Yesterday, Restaurant Brands said CVC no longer intended to proceed with the offer at all.

Restaurant Brands chairman Bill Falconer said his company had been talking with CVC about improving its bid. "However, these discussions were overshadowed by the inability of CVC and Yum to reach agreement." He said CVC had requested several extra undertakings from Yum over the franchise terms that would apply under its ownership. While other parties had shown interest in Restaurant Brands, the company was not considering any other offers. Analysts said they anticipated rivals would have emerged before now and the Australian firm's difficulty negotiating with Yum could put off potential bidders.

"Any takeover thinking in the share price has gone," said Forsyth Barr analyst Guy Hallwright.

Restaurant Brands shares were trading at $1.28 before CVC made its intentions known. Hallwright said at those levels the share price reflected a largely mature group of businesses, with the exception of the still-small Starbucks operation. "It's hard to see where you are going to see growth potential, but you've got a reasonably solid business base."

Restaurant Brands chief executive Vicki Salmon said the company was beginning to get traction from remodelling stores in its biggest business, KFC, with results from the first five exceeding expectations. The pizza market also had capacity to develop further, benefiting Pizza Hut.

"They are brands that are well known - whether you'd call them mature, I'm not sure. Is Coke mature?" she asked.

Salmon also said where CVC's talks with Yum had floundered on changes to the franchise agreements, other bidders might not require such changes. "I don't think that's true for all the parties at all."

There had been two "reasonably serious" interested parties from Australasia, plus exploratory calls from others. Last month, the company warned tight margins were likely to push down its first-half profits, despite reporting a lift in second quarter sales. The company will release half year results tomorrow.