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
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
In addition to the sale for cash, other options may have been considered:
a. Part cash payment; part stock, with Sanders to get, say, 49% interest in the new company. Although
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
of return on capital of the new firm. Again, the time period could be set based on the time that
Sanders would actively promote the company.
Some form of the royalty or profit-sharing arrangement could be combined with a payment of, say,
$1,000,000 to satisfy Sanders’ desire for cash in hand.