U.S. fast-food giant McDonald’s will sell a controlling stake in its China and Hong Kong business for up to $2.08 billion to a consortium including state-owned Citic and the Carlyle Group, it was announced Monday.
The deal is part of an international turnaround plan by the Golden Arches as it struggles with sluggish growth at home.
Citic Limited, Citic Capital Holdings, Carlyle Group and McDonald’s will form a company that will act as a franchisee for the chain’s business in mainland China and Hong Kong for 20 years, the companies said in a joint statement.
Citic is a vast Chinese state-owned conglomerate with interests in businesses ranging from energy and manufacturing to real estate.
It said in a statement to the Hong Kong Stock Exchange that the purchase would deepen its exposure to China's consumer sector, "which is poised to be the main driver of China's economy for decades to come".
The burger chain last year announced plans to sell its over 2,600 restaurants in China and Hong Kong, after sales took a hit as tensions in the South China Sea dented US companies' earnings in the country.
Its China business also suffered a blow in 2014 after a food safety scandal involving one of its meat suppliers.
The deal gives McDonald's partners "who have an unmatched understanding of the local markets and bring enhanced capabilities", CEO Steve Easterbrook said in the statement.
Citic and Citic Capital will have a stake of 52 percent, Carlyle will take 28 percent and McDonald’s will retain 20 percent of the new company.
It will focus on growth in China's smaller regional cities and plans to open more than 1,500 restaurants in the mainland and Hong Kong over the next five years.
“Citic and Carlyle’s resources will allow McDonald’s to expand rapidly and refurbish old restaurants, which is expensive to do,” Ben Cavender of China Market Research Group told Bloomberg News.
“Given that McDonald’s lags behind KFC in terms of store count in China, we can expect them to expand aggressively and invest heavily.”
The Illinois-based burger chain has been overhauling its global structure under Easterbrook to compensate for slower growth in markets such as France and the US, its largest market.
The global restructuring plan calls for refranchising 4,000 restaurants by the end of 2018, with the long-term goal of franchising 95 percent of its outlets.
The new company will focus on menu innovation and enhanced restaurant convenience, and McDonald's existing management team will continue to lead the business, the statement said.
McDonald's opened its first restaurant in mainland China in 1990 and currently employs over 120,000 people, it said, adding that the fast-food chain is the country's second-largest.
It was one of the largest-ever China deals for asset manager Carlyle, which has invested more than $7 billion of equity in the world's second-largest economy, according to the statement.
The deal is expected to be closed in mid-2017 pending regulatory approval.
Investors appeared to welcome the deal, as shares of Citic Limited closed up 1.24 percent on the Hong Kong exchange Monday.
Rival Yum Brands, owner of KFC, Pizza Hut and Taco Bell, last year split off its $6.9 billion China business into a separate company, Yum China, to focus on its huge but struggling restaurant empire in the country.
|© Provided by AFP As McDonald's sells a controlling stake in it's mainland China and Hong Kong franchise business, it announces plans to open 1,500 new restaurants in five years in those markets|
McDonald's selling 80% stake in China, Hong Kong restaurants
McDonald's is handing over an 80% stake in it's China-based restaurants to a team that includes the nation's biggest conglomerate.
The roughly $2.1 billion deal will form a new company that will link McDonalds with CITIC Limited, a Chinese company with businesses that include manufacturing, financial services and real estate. The other partners include CITIC Capital Holdings, and the Carlyle Group, and together the goal is for the partnership to help bolster sales at the hamburger giant's existing eateries as well as open an additional 1,500 restaurants in China and Hong Kong by 2022.
The move reflects McDonald's emphasis on shifting restaurants to franchisees, allowing it to shed the expenses that come with managing an individual eatery's staff and operations but still make a profit. .
The $2.08 billion transaction will leave CITIC and CITIC Capital with interests of 52%, giving it majority control. Carlyle will have a 28% stake, and McDonalds will hold onto 20% of the restaurant interests.
China has become a fertile frontier for numerous companies, including Starbucks and KFC owner Yum Brands, who are eager to tap into its growing middle class. In addition to opening up new locations, the partnership is hoping to boost sales at existing eateries by tweaking the menus and streamlining the customer experience.
"China and Hong Kong represent an enormous growth opportunity for McDonald's,'' McDonald's CEO Steve Easterbrook said,in a statement. "This new partnership will combine one of the world's most powerful brands . . ..with partners who have an unmatched understanding of the local markets.''
At the start of the year, McDonald's operated and franchised more than 2,400 eateries mainland China and over 240 locations in Hong Kong, where it is the largest quick service restaurant chain.
McDonald's is selling most of its China business as it plans to expand there
Fast-food giant McDonald's Corp. is selling a controlling stake in its China business to a group of investors led by state-owned Chinese conglomerate Citic Ltd. in a deal worth up to $2.1 billion, the companies said Monday.
The transaction is part of a global business overhaul being carried out by the American company to keep up with changing tastes that have resulted in declining sales.
Under the terms of the deal, Citic and its investment management unit Citic Capital will acquire 52% of the business while another partner, the Washington-based private equity firm Carlyle Group, will own 28%. McDonald's will retain a 20% stake.
About two-thirds of the China operation's 2,640 outlets, including 240 in Hong Kong, that are now owned by McDonald's will be refranchised. The China business, which employs more than 120,000 people, is valued at up to $2.1 billion, according to the agreement.
Under McDonald’s Chief Executive Steve Easterbook's restructuring plan launched in 2015, the company wants franchisees to take over more company-owned outlets, giving local managers more decision-making power to respond to Asian customers.
McDonald's is China's second-biggest fast-food company after Yum Brands' KFC, which has more than 5,000 locations. It has faced trouble recently in China after it was caught in a food safety scandal when a supplier was found selling expired meat.
McDonald's will get cash and new shares under the terms of the agreement, which is for 20 years.
The deal, which still needs approval from regulators, is expected to be completed by mid-2017.
Oak Brook, Ill.-based McDonald's and its partners plan to add 1,500 restaurants in China and Hong Kong over the next five years to capitalize on booming demand from the country's growing middle class, which has money to spend on eating out.
“As disposable incomes rise, people will continue to spend more on leisure and on dining out, and there is particularly great growth potential in tier three and four cities,” the announcement said, referring to less-known provincial cities with large populations. “As such, the market for Western Quick Service Restaurants is expected to continue to grow rapidly.”