Loeb's Third Point Builds Big Stake in KFC, Pizza Hut

Daniel Loeb's Third Point LLC has built a "significant" position in KFC and Pizza Hut parent Yum Brands Inc., expressing optimism about its business in China.

Mr. Loeb, in his quarterly letter to his investors, disclosed the position Friday and said he sees a "dramatic profit recovery" coming in the next two years, while also crediting management for saying the right things about shareholder value.

While known as an activist, Mr. Loeb has taken a more friendly tone in some recent investments. He said he expects Yum management will follow through on creating value, though he also listed several moves that he thinks could help. Those moves include franchising more of the restaurants, adding debt or "perhaps even an alternative ownership structure."

Yum shares rose 4% to $89.40 in recent trading.

"We appreciate their confidence and investment in Yum Brands," a company spokesman said.

The letter also disclosed a new stake in Devon Energy Corp., an energy exploration and production company Mr. Loeb said has valuable assets. He suggested the company, which has been shedding some assets, could do more to focus on its operations in three "high-return" shale formations.

The letter also said Third Point continues to see opportunity in Japan thanks to the economic strategy of Prime Minister Shinzo Abe, nicknamed Abenomics. Japan now makes about 10% of Third Point's investments, the letter said.

In the U.S., Mr. Loeb wrote that he believes it's "unlikely" the Federal Reserve will increase interest rates in June, though he sees opportunities to buy stocks this month. He also noted that he has invested more in short positions of single companies so far this year than he did all of last year.

Write to David Benoit at [e-mail]

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