Devyani International (DIL), which operates KFC and Pizza Hut outlets in India, has entered a merger agreement with Sapphire Foods (SFIL).
The deal would combine two Yum! Brands franchisee operators in India and create one of the largest quick-service restaurant (QSR) players in the country.
The merger will require the usual regulatory and statutory clearances and is expected to take around 12 to 15 months to become effective.
It is planned to be implemented through a share-swap arrangement. Under the agreed ratio, DIL will issue 177 equity shares for every 100 equity shares of SFIL.
Although the companies have not disclosed the deal value, various media reports have indicated a figure of $934m.
Separately, Arctic International, a group company of DIL, is set to acquire about 18.5% of SFIL’s paid-up equity share capital from the current SFIL promoters, with an option to assign this stake to a mutually agreed financial investor.
Under arrangements linked to Yum! Brands’ approval, DIL has agreed to actions described as accelerating the transformation and growth of the Yum! Portfolio. This includes agreed enhancements of certain waivers intended to support store expansion and longer-term alignment for KFC and Pizza Hut.
DIL will also acquire 19 KFC restaurants in Hyderabad that are currently operated by Yum! India. In addition, DIL has agreed to pay a one-time charge to Yum! India relating to merger approval and a licence fee for the additional territory.
The combination is also expected to create potential operational efficiencies from consolidated procurement and increased negotiating leverage with vendors, landlords, and other stakeholders, alongside integration of financial, managerial, and technical capabilities.
They have also referred to improved financial flexibility and cash flow generation to support expansion and access to funding.
Yum! Brands CFO Ranjith Roy said: “Devyani International Limited and Sapphire Foods India Limited have been outstanding partners to Yum! for many years.
“India is a high-priority market for us with an abundance of white space for further growth and strong consumer reception for our brands.
“We are pleased to support this proposed merger to unlock a new phase of accelerated growth in the region and to advance supply chain operations, leading to a stronger, more resilient partner in India and greater value for both shareholder bases. We look forward to our continued partnership.”
DIL has stated it expects annual synergies of Rs2.1bn ($23.2m) to Rs2.25bn ($24.9m) from the second full year of operations of the integrated company.
Full integration and the realisation of identified synergy benefits are expected to take 15 to 18 months from the effective date of the merger.
