Adds analyst comments in paragraphs 4-5, updates shares

By Koyena Das and Neil J Kanatt

June 16 (Reuters) - Yum Brands YUM.N said on Tuesday it would sell its Pizza Hut chain for $2.7 billion, as the fast-food business struggles with stiff competition and cautious consumer spending.

Pizza Hut in Mainland China will be acquired by Yum China Holdings 9987.HK for $1.2 billion, while the rest of the business will go to private equity firm LongRange Capital for $1.5 billion.

Rising inflation and higher commodity costs have weighed on U.S. pizza chains already facing weak demand, as growing use of GLP-1 weight-loss drugs nudges consumers toward healthier options.

"LongRange Capital is effectively buying a globally recognised brand in need of sharper focus, while Yum China’s move gives local operators more control over a key market," said Sam North, market analyst at eToro.

"The price is not spectacular for such a famous name, but it removes a persistent drag and gives Pizza Hut a chance to be run as a turnaround story," North added.

Last year, Yum said it was exploring strategic options after several quarters of declining sales at Pizza Hut. Yum entered exclusive talks with LongRange in May.

"These transactions enable Yum! to be a more focused company," Yum Brands CEO Chris Turner said.

Pizza Hut was acquired by PepsiCo PEP.O in 1977 and spun off in 1997 alongside KFC and Taco Bell to form the company that became Yum Brands in 2002.

Yum, which will be left with Taco Bell and KFC, expects the sale to close in the third quarter of 2026, pending regulatory approvals.

LOCAL OPERATORS TAKE CHARGE

The sale of the China business mirrors a broader trend of U.S. firms handing control to local operators to navigate tougher competition and shifting demand.

Earlier this month, General Mills GIS.N agreed to sell its Haagen-Dazs shops in mainland China to a group led by tea chain Ningji, while Starbucks SBUX.O sold a majority stake in its China operations to Boyu Capital last year.

Yum China, a Shanghai-based spin-off of Yum Brands, owns and franchises over 18,000 stores and aims to expand Pizza Hut to more than 6,000 outlets by 2028.

Yum Brands and Yum China also agreed to financial incentives tied to KFC China’s growth and will collaborate on expanding Taco Bell in Mainland China.

U.S.-listed shares of Yum China were flat after earlier losses, while shares of Yum Brands, which also announced an additional $4 billion share buyback, rose about 2%.