McDonald’s Said to Sign Deal Monday on China Franchise Sale

  • Citic to buy 52% stake in business, Carlyle to hold 28%
  • Deal gives China operations an enterprise value of $2 billion

Why Is McDonald’s Selling Control of Its China Business?

McDonald’s Corp. plans to sign an agreement as soon as Monday to sell 80 percent of its operations in China and Hong Kong to a consortium of Citic Group Corp. and Carlyle Group LP, people with knowledge of the matter said.

The deal, which includes 20-year mass franchise rights, values the business at about $2 billion including debt, the people said, asking not to be identified because the information is private. Citic, the Chinese state-backed conglomerate, plans to take a 52 percent stake while Carlyle would hold 28 percent, according to the people.

McDonald’s will retain a 20 percent shareholding in the venture, the people said. The sale could be announced this week, according to the people.

Oak Brook, Illinois-based McDonald’s is revamping its ownership structure in markets such as China, South Korea and Southeast Asia as the world’s biggest restaurant chain attempts to streamline its sprawling global operations. Chief Executive Officer Steve Easterbrook is pursuing a turnaround plan to revive the company as it faces the fourth straight year of traffic declines in the U.S., its largest market.

Terms of the deal could still change, according to the people. A Shanghai-based spokeswoman for McDonald’s didn’t immediately answer a phone call and e-mail seeking comment, while representatives for Carlyle and Citic declined to comment.

Read more: the challenges facing McDonald’s in China

The months-long auction process drew interest from international private equity funds and local companies. In October, people with knowledge of the matter said TPG Capital had exited the race, leaving its erstwhile partner, Chinese grocery operator Wumart Stores Inc., to compete against Carlyle and Citic. Bain Capital had also teamed up with Chinese hotelier GreenTree Hospitality for a bid, the people said at the time.

McDonald’s said in March it’s seeking strategic partners to help it add more than 1,500 restaurants in China, Hong Kong and Korea over the next five years. It has more than 2,800 restaurants in those locations, the majority of which are company-owned. Its long-term target is to have 95 percent of its international outlets owned by franchisees.

U.S. restaurant chains have seen their market lead in China challenged by a growing line-up of Asian competitors such as Ting Hsin International Group’s Dicos eateries. The seller of Big Macs is also playing catch-up to Yum China Holdings Inc., its main fast-food competitor in Asia’s largest economy. The Chinese KFC operator spun off from its U.S. parent Yum! Brands Inc. Nov. 1, and has a carte blanche opportunity to pursue growth and add 600 restaurants a year in the country, Chief Executive Officer Micky Pant has said.

— With assistance by Jonathan Browning, Vinicy Chan, Cathy Chan, Steven Yang, and Rachel Chang

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