During a two-year period in high school, Mom and Dad took me to Pizza Hut every Friday night for pepperoni thin-crust pizza. I still love pizza, but I have not stepped into a Pizza Hut for nearly 20 years. Accordingly, I was not surprised when I read that Yum Brands sold Pizza Hut to two buyers for about $2.7 billion.

I never understood the Yum Brands rollup strategy of owning KFC, Taco Bell, and Pizza Hut. While each brand had its own leadership team, each had to compete for capital, a limited resource. All of those Pizza Hut remodels cost money, lots of it. But I’m guessing delays occurred because the other QSRs need capital for upgrades, too.

After reading the news, here are several thoughts swirling around in my head:

Yum Brands sold this asset at a very deep discount. The $2.7 billion we read about is significantly lower than Domino Pizza’s capitalization of more than $10 billion as of this writing. I’ve ballparked the PE ratio on a trailing twelve months at just north of 6. Both numbers are screaming, “We had no idea what we were doing.”
The story does not reveal the full financial picture. One can only guess the amount of money spent on relocations, rehabs, and other investments made over the past 5-7 years just to keep pace with competitors. Remember, accounting profit is never the end game; economic profit is. I’m sure the GAPP jockeys will reveal a paper profit. Sorry, but for us finance people, that’s merely an illusion.
Letting go is hard to do. The question I ask every client at some stage of our relationship is, “Will we be relevant five years from now?” Many suffer from a type of time blindness that hides the real answer to this question. Letting go is hard. Yum Brands should have let go years ago, as the Pizza Hut growth era ended well after they acquired the brand. It’s true that smart people make bad business decisions.

What’s your personal hot take on this divestiture? Too little too late?

Photo Credit: Dan Keck