TPG to Exit Race for $2 Billion McDonald’s China Business

  • Wumart bidding alone for fast-food chain’s local franchise
  • Bain Capital partners with Chinese hotelier GreenTree

TPG Capital has exited the race for the China operations of McDonald’s Corp., leaving two other foreign buyout firms to compete with local bidders in a sale that could fetch as much as $2 billion, people with knowledge of the matter said. 

Bain Capital has partnered with Chinese hotelier GreenTree Hospitality for its offer, while Carlyle Group teamed with Beijing-based conglomerate Citic Group Corp., according to the people, who asked not to be identified because the information is private. TPG’s erstwhile partner, Chinese grocery operator Wumart, is bidding on its own, the people said.

The world’s biggest restaurant chain is seeking to streamline its sprawling global operations and return to growth by revamping the ownership structure in markets such as China, South Korea and Southeast Asia. Chief Executive Officer Steve Easterbrook, who took the reins last year, is pursuing a turnaround plan to revive the company amid a sales slowdown in the U.S., its largest market.

The bidders are competing with dairy producer Beijing Sanyuan Foods Co., which has also been negotiating terms of a potential deal with McDonald’s, according to the people. McDonald’s, which is selling 20-year mass franchise rights for China and Hong Kong, plans to pick a winner by mid-November, the people said.

“For private-equity firms, the valuation McDonald’s wants is too high,” said Shaun Rein, Shanghai-based managing director at China Market Research Group. “It is questionable if they can get the returns they want being a franchisee rather than full business owner as they would in the typical PE investment.”

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Shares of McDonald’s fell 0.5 percent to $112.11 at the close Wednesday in New York, extending this year’s decline to 5.1 percent.

Representatives for Bain, Carlyle, McDonald’s and TPG declined to comment. A spokeswoman for Citic said she couldn’t immediately comment. Calls to the offices of Greentree and Wumart weren’t answered. A woman who answered the phone in the office of Beijing Sanyuan’s board secretary said she couldn’t comment and declined to transfer calls.

McDonald’s, which generates about two-thirds of its revenue from outside the U.S., got the biggest boost last quarter from its business abroad. In its so-called high-growth unit, which includes China and Russia, comparable-store sales climbed 1.5 percent in the third quarter. Analysts had estimated an increase of 0.5 percent.

U.S. same-store sales increased 1.3 percent, the company reported last week, compared with the average estimate of 1.2 percent.

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