Does Pepsi Own Taco Bell, KFC, or Pizza Hut?

Last Updated on 11/20/2017 by GS Staff

[otw_shortcode_dropcap label=”Q:” size=”large” border_color_class=”otw-no-border-color”][/otw_shortcode_dropcap] Does Pepsi own Taco Bell, KFC, or Pizza Hut?

[otw_shortcode_dropcap label=”A:” size=”large” border_color_class=”otw-no-border-color”][/otw_shortcode_dropcap] This is a good question because if you visit Taco Bell, KFC, or Pizza Hut you will see Pepsi products featured on the menus. This obviously does not necessarily mean that Pepsi owns these companies, but they clearly have some sort of relationship. Let’s dig into their relationship.

Taco Bell, KFC, and Pizza Hut are currently owned by Yum! Brands (NYSE: YUM). Pepsi is a separate publicly traded company that trades under NYSE: PEP. Pepsi does not own Taco Bell, KFC, or Pizza Hut.

While Pepsi currently does not own these restaurants, they once did. Pepsi decided to spin off Taco Bell, KFC, and Pizza Hut into their own publicly traded company in 1997. The spin off was called Tricon Global Restaurants. The Tricon name later changed to the current Yum! Brands.

According to The Baltimore Sun, PepsiCo received $4.5 billion from the Tricon spin off. The company used the money to mostly payoff short-term debt and secondarily for share buybacks. After the spin off, Pepsi was free to focus mainly on its two core businesses consisting of beverages and snack foods.

The spin off left Tricon with $4.7 billion in debt. In order to start to managing this debt, Tricon started to aggressively sell its company-owned restaurants to franchises. This process is known as refranchising. At the time, the company was operating 46 percent of its restaurants through the corporation. Their goal was to reduce that amount to under 30 percent through refranchising efforts while gaining the benefit of increased cash flow from areas such as realized franchise fees and royalties.

If you flip through the 1999 Yum!/Tricon Annual Report, which was a couple of years after the spin off,  you can see how these refranchising efforts paid off. From the report:

In 1999, we sold over 1,400 restaurants to franchisees, reducing company ownership of the system from 28% to 23%, closing in on our target of about 20%. Cash from operations and this refranchising strategy generated over $1.5 billion in cash flow. This, in turn, enabled us to pay down over $1 billion in debt last year. Significantly, we also reinvested about $470 million in new and existing restaurants in 1999. We also bought back 3.3 million shares of our stock since September, underscoring both our strong cash generation and confidence in our growth potential.

While Tricon was left with a lot of debt to deal with, they also were blessed with a ton of assets. Specifically, the spin off company was made up of approximately 30,000 restaurants worldwide (company-owned and franchised) with sales of about $20 billion in the year proceeding the spin off, 1996. The asset base was clearly a nice starting point for Tricon/YUM! Brands to develop future growth.

Yum! Brands (Formerly Tricon) Stock Performance Since Spin Off

Below you can see the solid return shareholders received if they held their shares of Tricon (now Yum!) from the spin off to today’s date.

Pepsi Stock Performance since Tricon/Yum! Spin Off

You can see by the table below that Pepsi’s stock also experienced a healthy return since the 1997 spin off of Taco Bell, KFC, and Pizza Hut. Spin offs are often good investments because the market cannot always realize the true value of a large company with many working parts until a spin off occurs.

Conclusion

Does Pepsi own Taco Bell, KFC, or Pizza Hut? The answer is no, but they had quite the past as discussed above. You may be curious if any company, such as Coke, owns Pepsi. Pepsi is not owned by Coke or any other company. It is the parent company to many popular brands such as Quaker, Tropicana, MTN Dew, Lay’s, Doritos, and many more.

Image Credit: Phillip Pessar: CC via flickr