KFC Holdings Japan’s [TYO:9873] largest shareholder Mitsubishi Corp [TYO:8058] is seeking to sell its entire 35.12% stake in the fried chicken restaurant chain operator, sources familiar with the situation said.

Information Memorandum (IM) has been sent to potential buyers, and the first-round bids will be collected in March, three of them said.

KPMG has been advising the sell-side, the five sources said adding that the deal is likely to attract global private equity firms.

The stake sale could lead to a privatization of KFC Holdings Japan, currently valued at JPY 81.5bn (USD 541m), the first source said.

Mitsubishi Corp considers exiting KFC Holdings Japan as the franchise contract with the brand owner Yum! Brands Inc [NYSE:YUM] is about to expire, the first source said. 

Kentucky Fried Chicken Japan Ltd, the operating subsidiary of KFC Holdings Japan, has a master franchising contract with the licenser, allowing it to manufacture and sell products with the trademark, according to a disclosure in the company’s 2022 financial statement.

The contract period is from 11 July 2004 to 30 November 2024, the document shows.

According to the first and second sources, the sale may face obstacles as it is uncertain if Yum! Brands will agree to grant a license to a new buyer.  There was a franchise deal broken in the past due to the objection from the Yum! Brand, the second source said.

The licenser can raise the licensing (royalty) fee post the deal, but it would be hard to determine the potential range at this moment, the first source noted. These factors would likely complicate the decision‐making process of potential bidders and finalize the offers, he added.

The statement also shows that the licenser is able to cancel the contract whenever a new shareholder(s) seizes a 25% stake or more in KFC Holdings Japan or a new shareholder acquires more than a 10% stake and obtains the right to appoint a director or auditor.

KFC Holdings Japan operates 1,197 restaurants in Japan, as per its website.

KFC Holdings Japan was established in 1970 as a joint venture of Mitsubishi Corp and Kentucky Fried Chicken Corporate Holdings (now called Yum! Brands), as stated in Mitsubishi’s press release dated 31 October 2007.

In 2007, Mitsubishi, which owned a 31.24% stake in KFC Holdings Japan, acquired another 31.51% stake from Yum! Brands via a discounted tender offer, estimated for JPY 14.8bn as disclosed. Then in 2015, Mitsubishi reduced its stake in KFC Holdings Japan to the present level via an offering in the market.

KFC Japan reported a sales increase for the nine months ending December 2023 to JPY 83.9bn from JPY 75.6bn a year earlier, according to its financial statement. The operating profit also surged 84.8% to JPY 5.5bn from JPY 3bn over the same period.

Mitsubishi and KPMG declined to comment. KFC Japan Holdings did not return requests for comment by the time of publication. Yum! Brands did not respond to multiple requests for a comment made through voice messages. The company’s email address was not available in the public domain.