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KFC and the Colonel Case 35
General Business Considerations
Purpose: This case is different from the prior 34 and may only appeal to certain instructors. It is a
real-world documentation of the process that Colonel Harland Sanders went through in selling out
Kentucky Fried Chicken to John Young Brown, Jr. in 1964. It is really part management and part finance.
The student also views the early trials and tribulations of the Colonel as well as the enormous success of
his company after he sold it for the very modest price of $2 million. The student is asked to consider
whether the Colonel acted prudently in accepting the offer based on the information he had at the time
and what additional steps he might have taken in the negotiations.
Relation to Text: The case can be introduced at any point as interesting reading, but should probably
follow the material on long-term financing and mergers.
Complexity: The case involves the absorption of information rather than complex analysis and should
probably require 45 minutes.
Solutions
A number of issues can be raised concerning Sanders’ approach in connection with the sale to Brown and
Massey.
First of all, it would appear that he should have consulted with more than one individual (Harman) before
he made a proposal to sell at $2,000,000. He should have discussed the matter with Claudia, who had
been his business partner and later his wife, before coming to a final decision. As a matter of courtesy, he
should also have advised his office staff that he was considering the sale and perhaps asked for their
What are some of the other options that Sanders may have considered other than the $2,000,000 cash
price?
Initially, $2,000,000 “cash” turned out not to be exactly $2,000,000 as of the date of the sale since the
balance of $1,500,000 was to paid over five years after the down payment of $500,000. It was, therefore,
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw-Hill Education.
a. Part cash payment; part stock, with Sanders to get, say, 49% interest in the new company. Although
Sanders shied away from stock, he may, if he had consulted with others, have found this option
b. A royalty arrangement, say 25% up to 50% of the franchise fees over the next five or ten years—or
c. A profit-sharing arrangement with profits to be distributed to Sanders over and above an agreed rate
The price that Sanders set apparently came off the top of his head, since he commented, “I think that
$2,000,000 sounds about right.” If he had made any calculations, he may have figured that the
current profits, estimated at $300,000, capitalized at 15% would come to $2 million. He apparently
In conclusion, it may be said that Sanders was a remarkably successful person. He was a great
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw-Hill Education.
