Little Sheep Group Ltd (HKG: 0968), China's largest hotpot restaurant chain, received a notice from the Ministry of Commerce that the antimonopoly review of Yum! Brands Inc's (NYSE: YUM) takeover of it will be delayed for 60 calendar days.
Yum agreed in May 2011 to acquire Little Sheep for HK$4.56 billion, and submitted the plan to the Ministry of Commerce for antimonopoly review, which was formally accepted on June 27.
There have been worries that the ministry would block the deal to prevent a likely monopolistic positioning of Yum in the Chinese fast food market.
The delay stoked uncertainty over the deal, weighing on Little Sheep's shares that closed down 13% on Wednesday to the lowest point since the deal was announced in May. Yum declined to comment.
According to China's Antitrust Law, the first-phase assessment of a case lasts up to 30 calendar days, and if necessary, the Ministry of Commerce could opt for a second phase lasting up to 90 calendar days; and if necessary, the 90 days could be extended for an additional 60 calendar days. The 90-day second-phase assessment of the Little Sheep case ended on October 25.
"The delay does not mean the deal will not be allowed to proceed," Wang Zhile, head of the Multinational Corporations Research Center of the Commerce Ministry, told the 21st Century Business Herald. "Perhaps more documents are required to be handed over."
An analyst with a foreign-funded securities brokerage said that the Ministry of Commerce might need to take a longer period to assess this case due to scarce data for the hotpot industry.
Yum currently operates some 3,200 KFC restaurants, 500 Pizza Hut restaurants and 100 delivery stores in China; its revenue from the country was ¥33.6 billion last year. Little Sheep has almost 300 restaurants and posted ¥2 billion in revenues in 2010. Their revenue combined accounted for just 2% of dining-out receipts in China, according to Pei Liang, secretary-general of the China Chain Store & Franchise Association.