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
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.
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw-Hill Education.
given him an inkling that future increases could be anticipated. Advice from a CPA, financial
manager, or banker might have alerted him to make some provision for possible future gains even
though the outlook at the time of the sale could not be predicted with any degree of accuracy.
In conclusion, it may be said that Sanders was a remarkably successful person. He was a great
salesman and promoter, but he did not seek adequate advice when he got into an area outside of his
own expertise.