McDon­ald’s to sell con­trol­ling stake in China, Hong Kong

The Star Early Edition - - BUSINESS REPORT -

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

PHOTO: 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.

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