McDonalds cedes control of China business for $2 billion
McDonald’s has announced it is selling off most of its China business in a deal worth $2.08 billion. Citic, a massive Chinese financial firm, is taking the majority stake (52%) in the fast food giant’s operations in mainland China and Hong Kong.
McDonald’s has announced it is selling off most of its China business in a deal worth $2.08 billion. Citic, a massive Chinese financial firm, is taking the majority stake (52%) in the fast food giant’s operations in mainland China and Hong Kong. U.S. private equity firm The Carlyle Group, is also buying into the investment combo, taking a 28% stake, while McDonald’s will hold the remaining 20% of the business.
The partnership will use its combined expertise and resources to accelerate growth in McDonald’s business through new restaurant openings and to improve sales performance in existing restaurants. The focus will be on key areas such as menu innovation, enhanced restaurant convenience, retail digital leadership, and delivery. It intends to add more than 1,500 restaurants in China and Hong Kong over the next five years.
“China and Hong Kong represent an enormous growth opportunity for McDonald’s,” said Steve Easterbrook, McDonald’s CEO. “This new partnership will combine one of the world’s most powerful brands and our unparalleled quality standards with partners who have an unmatched understanding of the local markets and bring enhanced capabilities and new partnerships, all with a proven record of success. By working together, we will unlock even faster growth and be closer to the customers and communities we serve as McDonald’s works to be the leading quick-service restaurant across the Chinese mainland and Hong Kong.”
For Citic, this investment offers a chance to deepen its exposure to the consumer sector, which is poised to be the main driver of China’s economy for decades to come. This transaction is another step in Citic’s efforts to better balance its financial and non-financial businesses. Citic also sees opportunities for synergies with its existing businesses.
For Carlyle, this investment offers the chance to partner with an iconic brand with sizeable market share and growth potential in China. Carlyle has years of investment and operating experience in the global consumer and retail sector, and is well positioned to drive further growth of the new company.
As part of its turnaround plan announced in May of 2015, McDonald’s committed to refranchising 4,000 restaurants by the end of 2018, with the long-term goal of becoming 95% franchised. As a result of this transaction, McDonald’s is refranchising more than 1,750 company-owned stores in China and Hong Kong.
Upon completion of the transaction, which is contingent upon relevant regulatory approvals, the new company will have a board of directors with representatives from Citic, Citic Capital, Carlyle, and McDonald’s. McDonald's existing management team will continue to lead the business. The deal is expected to close in mid-2017.