Customers enjoying hotpot at a Little Sheep outlet in Nanjing on Tuesday. Yum! Brands Inc gained approval on Monday to acquire a further 66.05 percent of Little Sheep Group Ltd. Zhen Huai / for China Daily

SHANGHAI - Wandle Investments Ltd, a unit of New York Stock Exchange-listed Yum! Brands Inc (Yum), obtained clearance from China's Ministry of Commerce on Monday to acquire a further 66.05 percent stake in Hong Kong-listed Little Sheep Group Ltd at a premium price of HK$6.50 (83 US cents) cash a share.

The price is 30 percent above the closing price of HK$5 on April 21, the last trading day before Little Sheep's filing to the Hong Kong Stock Exchange.

The transaction must be approved by shareholders of Inner-Mongolia-based Little Sheep, which operates a chain of some 400 hotpot restaurants, mainly in the Chinese mainland.

In a statement to the Hong Kong bourse, Little Sheep said that it would notify its shareholders of the timetable "in relation to the proposal, the scheme and the option offer".

The transaction would increase Yum's holding in Little Sheep to about 93.2 percent. The remaining minority stake will be held by the co-founders of Little Sheep, Zhang Gang and Chen Hongkai.

Yum said it would take over the management and operation of Little Sheep when all conditions are fulfilled and the share acquisition plan is implemented.

Little Sheep closed at HK$6.37 on Tuesday, up about 15 percent. The chain posted revenue of 1.9 billion yuan ($299 million) in 2010, up 22.6 percent.

Yum made a preliminary proposal in April to acquire all outstanding shares of Little Sheep.

The Ministry of Commerce began a review of the deal in June. The ministry's Anti-Trust Bureau decided to extend the review period by 60 calendar days on Oct 25, arousing investor concern that the deal, involving a popular local brand, might find it hard to win government approval.

Jing-Shyh Sam Su, chairman and chief executive officer of Yum! Restaurants China, said the deal is another important step in executing Yum's strategy of being rooted in China.

Analysts said that the deal would help both companies expand their consumer bases and improve their competitiveness.

Linus Yip, a Hong Kong-based strategist with First Shanghai Securities Ltd said the arrangement would give Little Sheep an opportunity to learn advanced operating strategies from Yum, which would mean improved international competitiveness. Little Sheep has about 24 restaurants overseas.

Tough competition in the hotpot restaurant sector has pushed Little Sheep to "a bottleneck" and the chain might find it hard to maintain high growth rates. But cooperation with Yum "can help the company expand its presence in the global market and bring better management experience to companies", said Kang Jianhua, an analyst with CIC Industry Research Center.

Although industry experts generally took a positive view of the deal, consumers might not see things the same way.

According to an online survey conducted by sina.com, more than 50 percent of some 2,200 respondents said that they would not patronize Little Sheep outlets as often as before.

Li Tao in Hong Kong contributed to this story.