McDonald’s to sell controlling stake in China, Hong Kong
MCDONALD’s has agreed to sell a controlling stake in its China and Hong Kong operations to a group of investors for about $1.7 billion (R23bn), a key component of the fast food giant’s reorganisation in a market where it is striving to catch up with more nimble rivals.
Chinese state-backed conglomerate Citic, Citic Capital Holdings and US private-equity firm Carlyle Group would acquire an 80percent holding in a deal valuing the business at $2.08bn, according to a statement yesterday. McDonald’s will keep the remaining stake. The new owners planned to add more than 1 500 restaurants over the next five years in smaller Chinese cities.
McDonald’s and rival Yum China Holdings, which operates the KFC and Pizza Hut brands in the mainland, are among retailers that are trying to fend off domestic competition and attract middle-class Chinese consumers.
Under the agreement, Citic and Citic Capital Partners will jointly take a 52percent stake, while Carlyle will hold 28percent. “Citic and Carlyle’s resources will allow McDonald’s to expand rapidly and refurbish old restaurants,” said Ben Cavender, an analyst at China Market Research Group.
Shares of McDonald’s were little changed at $120.76 at 9:42am in New York. The stock gained 3percent last year.
McDonald’s operated more than 2400 outlets in mainland China. Its five-year target meant about 300 stores would be added annually, according to the companies.
While Citic and Carlyle were paying a “substantial price” for 20-year franchise rights, the food and beverage chains are “cash machines”, said Cavender.
McDonald’s chief executive Steve Easterbrook is pursuing a turnaround plan to revive the company as it faces the fourth consecutive year of traffic declines in the US.
The China deal linked McDonald’s to partners “who have an unmatched understanding of the local markets and bring enhanced capabilities and new partnerships”, said the chief executive. The new partnership would also focus on areas such as menu innovation, retail digital leadership and delivery.
McDonald’s has committed to re-franchising 4 000 restaurants by the end of next year, and has set a long-term target to have 95percent of its outlets owned by franchisees. US restaurant chains have seen their market lead in China challenged by a line-up of Asian competitors. – Bloomberg
A man uses a smartphone outside McDonald’s. McDonald’s agreed to sell a controlling stake in its China and Hong Kong operations for $1.7 billion.