Fast food chain a juicy takeover titbit

Restaurant Brands is looking like a tasty target for takeovers after early renewal of its KFC and Pizza Hut franchises.

Signing the ten-year deal with franchisor Yum Brands, seven months before they were to run out, secures two brands that make up 92 per cent of the Restaurant Brands business.

This time last year the short time left on the old deal was said to be a factor in a takeover offer of $1.66 per share being withdrawn by private equity fund CVC Asia-Pacific.

Restaurant Brands' chairman Ted Van Arkle said the signing provided "certainty for the market".

But its brands - KFC, Starbucks and Pizza Hut - face tough times.

KFC's sales have improved after a $12 million refit of some stores and a new menu, but it will soon face competition from the Australian Red Rooster chain.

Starbucks, which delivers 8 per cent of the business, is growing slowly. Investors are waiting to hear what the company is going to do about the troubled Pizza Hutt chain. First and second quarter sales figures confirm that competition is hurting Pizza Hut.

Domino's Pizza last month highlighted New Zealand as one of its biggest regional growth markets, and the New Zealand franchisees for Burger King were negotiating to buy the award-winning Hell Pizza chain.

So Restaurant Brands - with the two oldest fast food outlets - has been fighting a rearguard action.

It has been extracting itself from its 2002 purchase of Pizza Hutt outlets in Victoria, Australia. Van Arkle declined to name who was buying, but said he was confident that the sale would be completed and the buyer revealed soon.

After a profit warning at the end of August that the pizzas were weighing down profits on both sides of the Tasman, the stock initially dropped 21 per cent from $1.19 to 94 cents. It rose the following week to $1.03 - still down 16 cents or 11 per cent.

Pacific Equity Partners had expressed an interest in buying Restaurant Brands but no one has come forward since the recent slide.

The half-year results in October would provide more "clarity" about the way ahead, Van Arkle said.

One analyst said there were rumours about potential for buyer interest amid investor dismay at the current price of the stock.

Domino's Pizza Australia and New Zealand chief executive Don Meij dismissed a suggestion that it might pick up some of the Pizza Hut stores in Victoria or New Zealand.

Domino's was a global competitor to Pizza Hut, and even if such a deal were viable, Yum Brands would never allow it to happen, he said.