Market - - Jan 09,2017
US fast food giant McDonald’s has agreed to sell 80 percent of its China and Hong Kong business to China's state-owned investment group Citic Ltd., and US private equity firm Carlyle Group.
The two companies will take control of McDonalds’ operations for $2.1 billion. At present, McDonald’s owns and operates about 65 percent of its 2,400 Chinese and 240 Hong Kong outlets and with this deal, it targets to expand rapidly without having to use much of its own capital.
Franchising would allow McDonald's to grab parts of sales while majorly cutting operating costs. This is a 20-year deal reached after months of negotiations between the fast-food chain, private equity firms including Carlyle and TPG Capital Management LP as well as several other Chinese suitors.
McDonald's had already announced in March last year that it was seeking partners to help it add more than 1500 restaurants in China, Hong Kong and Korea over the next five years.
As per the deal signed this week, the fast food giant will hold a 20 percent stake in its China business, while Citic will hold a 52 percent share in the partnership and Caryle will take over 28 percent. McDonald's is targeting smaller towns by merging with local companies.
Earlier, McDonald's had anticipated generating up to $3 billion from the sale of its business, but later dropped the stake hoping to benefit from exposure to future growth in China. The partnership will also aim to boost sales at existing restaurants, with menu innovation being the key focus.
McDonald’s opened its first restaurant in mainland China in 1990 and is currently the country’s second largest fast food chain, employing over 120,000 people.
Yum Brands, the owner of KFC and Pizza Hut, is McDonald’s closest competitor and is also restructuring its Chinese business.