What Does Yum Brands' Spinoff Mean For Your Existing Shares?

Shares of Yum! Brands, Inc. YUM appeared to be significantly lower on Tuesday, but that is not the actual case.

Yum! Brands, the parent company behind Taco Bell, Pizza Hut and KFC, decided in 2015 that it is in the best interest of investors to split its business into two different identities: Yum! Brands (still tickered YUM and trading on the NYSE) and Yum China Holdings Inc YUMC.

The first business segment, Yum! Brands, represents more than 43,000 restaurants in almost 140 countries. The second business segment, Yum China Holdings, is a licensee of Yum! Brands in mainland China and holds the exclusive rights to all three restaurant brands.

Yum Brands' CEO Greg Creed explained to investors the logic behind the business split in early October. He said, "As a ‘pure play' franchisor, the transformed Yum! Brands will become more efficient and capital light with an optimized capital structure, improved cash flow and laser-like focus on our key strategies to drive same-store sales and new unit growth worldwide."

As part of the business separation, every investor will receive one share of the newly created Yum China for each share of the parent company they owned as of record on October 19. Investors will see this change reflected in their brokerage account as the business split was official as of Tuesday. No action is required on their end.

Investors won't lose any money on the business split. Yum! Brands' stock is trading lower on Tuesday to reflect the fact that the total value of Yum China was essentially removed from the parent company's stock and merely transferred into a brand new stock.

The total value of Yum China plus Yum! Brands on Tuesday is equal to the total value of Yum! Brands' closing price on Monday so investors aren't losing money.

Image Credit: By Tony Webster (Own work) [CC BY-SA 4.0] via Wikimedia Commons